Plaintiff v Other Party

WORDS AND PHRASES - 'necessary and properly performed' - s 60-12(a) of the Insolvency Practice Schedule (Schedule 2 to the Corporations Act 2001 (Cth)).

1 The liquidators of Barokes Pty Ltd ('Barokes' or 'the Company') apply to the Court for approval of their remuneration pursuant to s 60-10 of the Insolvency Practice Schedule (Corporations) ('the Practice Schedule') found at Schedule 2 of the Corporations Act 2001 (Cth) ('the Corporations Act'). Section 60-12(a) of the Practice Schedule provides that one of the matters the Court may take into account in assessing whether the remuneration claimed is reasonable is 'the extent to which the work by the [liquidators] was necessary and properly performed' (emphasis added). Barokes' main creditor and majority shareholder, Daiwa Can Company ('Daiwa'), objects to the remuneration claimed on the basis of unresolved concerns about the conduct of the liquidators in undertaking the sale of Barokes' business and the prosecution of certain litigation. To what extent should the Court have regard to the liquidators' conduct in assessing whether work undertaken was 'properly performed'?

2 The business of Barokes concerned a patented packaging system called 'Vinsafe' which enabled wine to be stored in a can. Despite being based in Melbourne, the Company held, or was an applicant for, patents in approximately 17 countries, including Japan. Barokes had commercialised its technology by granting licences to industry participants and developing and selling its own 'wine in a can' products which were marketed under the 'Barokes' and 'Vinsafe' trademarks. The 'Barokes' brand was well-known in Japan, which was the Company's largest developed market.

3 Barokes' United Kingdom subsidiary is Barokes UK Ltd ('Barokes UK'). Barokes UK holds a number of patents and trademarks, trades in Europe, and is engaged in certain litigation in Germany. Barokes was also involved in litigation around the world, including a highly contentious proceeding in Japan against Daiwa for infringement of its patent, along with an associated application by Daiwa to invalidate the patent (collectively, 'the Japanese litigation'), together with proceedings in Germany and Australia.

4 Mr James Koutsoukos and Mr David Coyne were appointed joint and several liquidators of Barokes ('the liquidators') pursuant to orders made by Sifris J (as his Honour then was) on 20 September 2018 and following his Honour's judgment delivered on 3 August 2018 in Knights Quest Pty Ltd v Daiwa Can Company.[1] Barokes was ultimately wound up on the just and equitable ground under s 461(1)(k) of the Corporations Act following extensive litigation between its shareholders.

5 The history of the dispute between the shareholders of Barokes is set out thoroughly in his Honour's judgment and need not be repeated in full. However, the salient points are as follows. In 2012, Daiwa purchased a 60% interest in Barokes and appointed two directors to the Company's board. The minority shareholders of Barokes were Knights Quest Pty Ltd ('Knights Quest'), as to 26.7%, and SMS Management Pty Ltd ('SMS Management'), as to 13.3%. Knights Quest is a company associated with Mr Gregory Stokes and SMS Management is an entity affiliated with Mr Steve Barics. Mr Stokes and Mr Barics were also directors of Barokes.

6 Following commencement of the Japanese litigation in August 2015, the minority shareholders applied to the Court under s 237 of the Corporations Act for leave to bring or continue that litigation in the name of Barokes. Daiwa also commenced a further proceeding in the Court on 24 August 2015,[2] seeking an order for the winding up of Barokes on the just and equitable ground ('the winding up proceeding'). Then, on 26 August 2015, Knights Quest and SMS Management commenced another proceeding in the Supreme Court of Victoria,[3] alleging oppression by Daiwa and seeking an order for the purchase of Daiwa's shares in Barokes ('the oppression proceeding'). Ancillary orders were also sought to permit Mr Stokes to commence and continue litigation in the name of Barokes, including a proceeding in China and the Japanese litigation.

7 The winding up proceeding and the oppression proceeding were heard together. Following the delivery of his Honour's judgment, Knights Quest and SMS Management filed applications for leave to appeal. The Court of Appeal stayed the winding up orders made on 20 September 2018 until determination of the application for leave to appeal and any appeal. On 19 December 2018, the Court of Appeal granted leave to appeal but ultimately dismissed the appeal itself. As a consequence, whilst the liquidators were appointed on 20 September 2018, the effective date of their appointment was 19 December 2018.

8 Upon commencement of the liquidation, the liquidators considered the ability of Barokes to continue trading and the possibility of selling its business as a going concern. This process entailed: undertaking valuations of plant, equipment, stock and other assets; reviewing work in progress and the extent of debtor receivables; estimating the cost of continuing to trade whilst undertaking a sales campaign; contacting key suppliers and customers to test the level of support for the business trading on and dealing with staff. As a consequence, the liquidators determined that Barokes had the ability to continue to trade and that the value of its assets would be maximised if the business was sold as a going concern. Further, the collection of debtor receivables was deemed more likely where supply to customers could be continued.

9 The liquidators commenced a sales campaign on 29 January 2019. Intellectual property, work in progress, shares in subsidiary organisations, stock and plant and equipment comprised the primary assets for sale. Current and future claims in respect of intellectual property infringement were specifically excluded from the sale of the business and assets. A commercially sensitive information memorandum was prepared by the liquidators and provided to interested parties on a confidential basis. The liquidators continued to trade until 7 June 2019, at which time the business and assets of Barokes were ultimately sold.

10 The sale campaign was extensive and additional time was allocated to interested parties to complete their due diligence and to allow the liquidators to consider offers. Ultimately, the liquidators received non-binding indicative offers from five interested parties, two of which were deemed not worth pursuing. Whilst Daiwa put forward three offers during the period from 15 March 2019 to 17 April 2019, it was ultimately unsuccessful in acquiring the Barokes business. The successful purchaser was Intelligent Packaging Pty Ltd ('Intelligent Packaging'). It is notable that Mr Stokes, who was associated with Knights Quest and a director of Barokes, was also the director of that entity.

11 Daiwa is aggrieved by this outcome and considers the sale process to be flawed. In essence, it argues that the liquidators failed to consider a fourth offer from Daiwa for the purchase of the business which was said to be superior to all other offers received. It is also suggested that there was a material change to the successful offer after Daiwa's fourth offer had been received (being a change in the identity of the purchaser). Daiwa's concerns about the way in which the sale of the Company's business was conducted feature heavily in its objections to the liquidators' remuneration application.

12 Upon appointment, the liquidators inherited a portfolio of litigation in various jurisdictions. As regards the Japanese litigation, there was an appeal by Barokes on foot at the time of the liquidators' appointment. The liquidators elected to continue with the appeal on the basis that substantive submissions had already been prepared and the majority of costs incurred. On 29 August 2019, the Japanese Intellectual Property High Court found in Daiwa's favour, upholding findings that the relevant Japanese patent was invalid and the claims against Daiwa for infringement should be dismissed. There is some uncertainty about the status of a further appeal apparently made in respect of that decision and Daiwa has objected to aspects of the liquidators' remuneration application on the basis of concerns about the manner in which the liquidators conducted the Japanese litigation.

13 As previously noted, Barokes' subsidiary, Barokes UK, was engaged in a proceeding in Germany at the time of the winding up. Specifically, Barokes UK had brought a claim for negligence against its former patent attorneys on the basis that they had allegedly failed to protect a patent within the European Union ('the German litigation'). An appeal had been lodged by Barokes UK in respect of an order for security for costs, and judgment of the German Court of Appeal was scheduled to be delivered in early 2020. The material filed in this remuneration application confirms that Barokes itself is also actively involved in the German litigation.[4]

14 In addition to dealing with the above litigation, the liquidators sought advice from overseas lawyers in order to maintain and progress a significant number of pending patent applications around the world.

15 The liquidators also made an application to the Supreme Court of Victoria pursuant to s 468(1) of the Corporations Act to validate certain transactions made during the period following the initial winding up on 20 September 2018, and the finalisation of the appeal from those orders on 19 December 2018. On 12 April 2019, the Court made orders validating certain transactions and invalidating others in the amount of $283,953.10 ('the invalidated transactions'). The liquidators sought to recover the invalidated transactions from the recipient and later resolved that claim by way of a commercial settlement.

16 The liquidators' originating process for approval of the remuneration under s 60-10(1)(c) of the Practice Schedule was filed on 24 January 2020. They claim remuneration in the sum of $129,060.50 (excluding GST) for work undertaken during the period 13 May 2019 to 31 August 2019 ('the relevant period'). In support of their application, the liquidators rely upon:

(a) the affidavit of James Koutsoukos sworn on 9 December 2019 and filed on 24 January 2020, together with exhibits, including a remuneration schedule ('the First Koutsoukos affidavit');

(b) the affidavit of service of Jang E Han affirmed and filed on 21 February 2020, together with exhibits ('the First Han affidavit');

(c) the affidavit of Abigail Clare Oakley sworn and filed on 21 February 2020, together with exhibits ('the Oakley affidavit');

(d) the second affidavit of Jang E Han affirmed and filed on 21 February 2020, together with exhibits ('the Second Han affidavit');

(e) the second affidavit of James Koutsoukos sworn and filed on 3 April 2020, together with exhibits ('the Second Koutsoukos affidavit'), including a revised remuneration schedule; and

(f) written submissions dated 21 February 2020, 14 April 2020 and 18 May 2020.

17 I am satisfied on the evidence before me that the liquidators have given proper notice of their remuneration application to persons required by r 9.2(2) of the Supreme Court (Corporations) Rules 2013 (Vic), including creditors and shareholders within Australia and overseas.[5]

18 The application to the Court for approval is necessary because the liquidators were unable to have their fees approved by creditors at a meeting held on 3 October 2019. A proxy for Daiwa (which is the largest creditor by value in the amount of approximately $10.8 million) called for a poll and voted against a proposed resolution for approval of the remuneration sought.[6]

19 In objecting to this remuneration claim, Daiwa relies upon the following material:

(a) objections to the application for remuneration dated 20 December 2019[7] ('the initial objections');

(b) revised objections filed on 27 March 2020, pursuant to the Court's orders of 24 February 2020 ('the revised objections');

(c) the affidavit of Timothy Randolph Price sworn and filed on 27 March 2020, together with exhibits ('the Price affidavit'); and

(d) written submissions dated 15 April 2020 and 11 May 2020.

20 By its initial objections, Daiwa stated it was investigating concerns that it held about the liquidators' conduct, particularly the process by which the liquidators effected the sale of Barokes' business and the manner in which they conducted the Japanese litigation. Daiwa explained that it was seeking information from the liquidators to address its concerns and may ultimately be required to commence proceedings against the liquidators. It was argued that because much of the work performed by the liquidators concerned the controversial matters identified by Daiwa, the liquidators' remuneration application should be deferred pending satisfactory resolution of those issues. It was further contended that if Daiwa could establish that the liquidators had acted unreasonably or in breach of duty, the remuneration claimed would need to be adjusted accordingly.

21 The liquidators' application first came before the Court on 24 February 2020. On that occasion, the liquidators sought to strike out the initial objections on the basis that they did not properly address the factors relevant to a remuneration determination as set out in s 60-12 of the Practice Schedule. The Court declined to strike out the initial objections and instead required Daiwa to reformulate its objections by reference to the factors set out in s 60-12 and the items claimed by the liquidators. The parties were also permitted to file any affidavit material and submissions in relation to the remuneration application. The matter was adjourned for further directions on 21 April 2020.

22 Daiwa's revised objections take issue with specific items claimed by the liquidators relating to either the sale of business transaction or the prosecution of the Japanese litigation and the German litigation. Just under $65,000 of work undertaken by the liquidators is the subject of Daiwa's objections, representing approximately 50% of the total remuneration claimed. The revised objections take the form of annotations contained within an additional column to the liquidators' remuneration schedule. Those annotations are amplified and supported by the Price affidavit which is a detailed document setting out the bases of the substantive objections taken by Daiwa, including a chronology of dealings between Daiwa and the liquidators.

23 The liquidators have not responded in detail to each of these objections because they do not believe the objections are relevant to the remuneration determination. Instead, the liquidators have included a further column in their remuneration schedule which records a generic response to each of the objections raised by Daiwa. That response simply provides that the relevant objection is 'not a proper objection'. Further, the liquidators do not admit the allegations made against them and reserve the right to respond more fully should it become necessary to do so in the future.

24 When the matter was next before the Court on 21 April 2020, Daiwa submitted that the Court should approve up to half of the remuneration claim and defer consideration of the balance for a period of six months to enable Daiwa to further investigate its concerns about the liquidators' conduct and, if appropriate, commence proceedings against the liquidators. The liquidators opposed that course. They also contended that determination of their remuneration claim by the Court would not prejudice Daiwa's right to bring any proceeding against the liquidators, including under s 90-10 of the Practice Schedule, nor affect the ability of the Court to later make an order under s 90-15(3)(f) of the Practice Schedule requiring the liquidators to repay any remuneration approved by the Court under ss 60-10 and 60-12. The interplay between the various provisions of the Practice Schedule is a matter to which I will return.

25 The Court ultimately declined to defer consideration of the remuneration application and ordered that the liquidators be paid an interim payment in the sum of $45,000.00 (plus GST) pursuant to s 90-15(3)(f) of the Practice Schedule, with such payment to be taken into account by the Court in making its final determination of the remuneration claim. Provision was made for the filing of supplementary submissions by the parties with the matter to be determined in chambers and without the need for any further appearance.

26 Section 60-5(1) of the Practice Schedule provides:

Remuneration in accordance with remuneration determinations

(1) An external administrator of a company is entitled to receive remuneration for necessary work properly performed by the external administrator in relation to the external administration, in accordance with the remuneration determinations (if any) for the external administrator (see section 60-10).

27 Section 60-10 of the Practice Schedule relevantly states:

Remuneration determinations

(1) A determination, specifying remuneration that an external administrator of a company (other than an external administrator in a members' voluntary winding up) is entitled to receive for necessary work properly performed by the external administrator in relation to the external administration, may be made:

(a) by resolution of the creditors; or

(b) if there is a committee of inspection and a determination is not made under paragraph (a) - by the committee of inspection; or

(c) if a determination is not made under paragraph (a) or (b) - by the Court.

Note: For determinations made by the Court, see also section 60-12 (matters to which the Court must have regard).

...

(3) A determination under this section may specify remuneration that the external administrator is entitled to receive in either or both of the following ways:

(a) by specifying an amount of remuneration;

(b) by specifying a method for working out an amount of remuneration.

Remuneration on a time-cost basis

(4) If a determination under this section specifies that the external administrator is entitled to receive remuneration worked out wholly or partly on a time-cost basis, the determination must include a cap on the amount of remuneration worked out on a time-cost basis that the external administrator is entitled to receive.

...

28 Section 60-12 of the Practice Schedule provides that, in exercising its power to make a remuneration determination in accordance with s 60-10(1)(c), 'the Court must have regard to whether the remuneration is reasonable, taking into account any or all of the following matters':

(a) the extent to which the work by the external administrator was necessary and properly performed;[8]

(b) the extent to which the work likely to be performed by the external administrator is likely to be necessary and properly performed;

(c) the period during which the work was, or is likely to be, performed by the external administrator;

(d) the quality of the work performed, or likely to be performed, by the external administrator;

(e) the complexity (or otherwise) of the work performed, or likely to be performed, by the external administrator;

(f) the extent (if any) to which the external administrator was, or is likely to be, required to deal with extraordinary issues;

(g) the extent (if any) to which the external administrator was, or is likely to be, required to accept a higher level of risk or responsibility than is usually the case;

(h) the value and nature of any property dealt with, or likely to be dealt with, by the external administrator;

(i) the number, attributes and conduct, or the likely number, attributes and conduct, of the creditors;

(j) if the remuneration is worked out wholly or partly on a time-cost basis - the time properly taken, or likely to be properly taken, by the external administrator in performing the work;

(k) whether the external administrator was, or is likely to be, required to deal with one or more controllers, or one or more managing controllers;

(l) if:

(i) a review has been carried out under Subdivision C of Division 90 (review by another registered liquidator) into a matter that relates to the external administration; and

(ii) the matter is, or includes, remuneration of the external administrator;

the contents of the report on the review that relate to that matter;

29 The factors contained in s 60-12 are largely the same as those set out in its legislative predecessor, s 473(10) of the Corporations Act.[9] Accordingly, the authorities which considered s 473(10) remain relevant to remuneration determinations in respect of which s 60-12 applies. However, one notable change relates to s 60-12(a). That section now provides that the Court may take into account the extent to which the work was 'necessary and properly performed', whereas under the analogue s 473(10)(a), the sub-section spoke of the extent to which the work performed was 'reasonably necessary'. As previously noted, the critical issue which arises for consideration in this application is whether the words 'properly performed' found in s 60-12(a) permit consideration of a liquidator's conduct, including allegations of misconduct or breach of duty.

30 Section 90-15 of the Practice Schedule relevantly states:

(1) The Court may make such orders as it thinks fit in relation to the external administration of a company.

Orders on own initiative or on application

(2) The Court may exercise the power under subsection (1):

(a) on its own initiative, during proceedings before the Court; or

(b) on application under section 90-20.

Examples of orders that may be made

(3) Without limiting subsection (1), those orders may include any one or more of the following:

(a) an order determining any question arising in the external administration of the company;

...

(e) an order in relation to any loss that the company has sustained because of a breach of duty by the external administrator;

(f) an order in relation to remuneration, including an order requiring a person to repay to a company, or the creditors of a company, remuneration paid to the person as external administrator of the company.

Matters that may be taken into account

(4) Without limiting the matters which the Court may take into account when making orders, the Court may take into account:

(a) whether the liquidator has faithfully performed, or is faithfully performing, the liquidator's duties; and

(b) whether an action or failure to act by the liquidator is in compliance with this Act and the Insolvency Practice Rules; and

...

(d) whether the company or any other person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the liquidator; and

(e) the seriousness of the consequences of any action or failure to act by the liquidator, including the effect of that action or failure to act on public confidence in registered liquidators as a group.

...

Orders to make good loss sustained because of a breach of duty

(6) Without limiting subsection (1), an order mentioned in paragraph (3)(e) in relation to a loss may include an order that:

(a) the external administrator is personally liable to make good some or all of the loss; and

(b) the external administrator is not entitled to be reimbursed by the company or creditors in relation to the amount made good.

...

31 As can be seen, s 90-15 is broad in its scope and contemplates not only the exercise of judicial discretion but also the determination of substantive rights.[10]

32 The process for assessing a liquidator's claim for remuneration was set out by the Full Court of the Supreme Court of Western Australia in Venetian Nominees Pty Ltd v Conlan,[11] and later summarised and applied by Dodds-Streeton J (as her Honour then was) in Re ACN 004 323 184 Pty Ltd v Spark[12] and in numerous other cases.[13] For convenience, I adopt Dodds-Streeton J's summary:

(a) The procedure for the determination is a summary one for fixing costs of an officer of the court as part of its supervisory function, in which strict observance of the rules of evidence is not ordinarily required.

(b) The onus is on the liquidator to establish that the remuneration claimed is fair and reasonable.

(c) The function of the court is to make an independent determination, based on the material proffered, of whether the remuneration claimed is fair and reasonable.

(d) If the liquidator establishes a prima facie case on the basis of the proffered material, which may include evidence which would not be admissible pursuant to strict observance of the rules of evidence, the court should then consider the validity of any objections.

(e) The mere listing of the persons who performed the work, the hours worked and the amounts claimed may be insufficient for the court to reach a determination. Ordinarily, the liquidator will provide 'a statement of account reflecting in the appropriate itemised form, details of the work done, the identity of the persons who did the work, the time taken for doing the work, and the remuneration claimed accordingly.'

(f) the statement of account should be verified by affidavit.[14]

33 The following further principles emerge from the authorities in relation to the necessary quality of the material supporting a remuneration application made by an external administrator and the nature of the court's role in making its assessment:

(a) the overriding principle is that 'sufficient information must be provided to the court to enable it to perform its function';[15]

(b) whilst there is no absolute rule regarding the amount of detail required to support a remuneration claim, the evidence relied upon should be sufficient to enable potential objectors and the court to consider the items claimed and to make an assessment of their reasonableness.[16] It follows that if there is inadequate evidence to support the claim, no order should be made;[17]

(c) the court is essentially looking for evidence of overcharging.[18] This may be indicated if there is a lack of proportionality between the amount charged relative to the value of the services provided;[19]

(d) the court is required to consider the actual nature of the work undertaken by the external administrator, whether it was reasonably necessary to carry it out and the appropriateness of the amount charged for it;[20]

(e) the language of s 60-12 makes clear that the ultimate question for the court in making a remuneration determination is whether the amount claimed by a liquidator is reasonable.[21] Reasonableness is the 'touchstone of the provision';[22]

(f) a remuneration determination by the court is not a 'rubber stamping' exercise.[23] Instead, it is the court's function to 'independently consider the nature and extent of the remuneration claimed and to make an assessment of its reasonableness having regard to the work performed and the particular features of the external administration';[24] and

(g) the claimant has the same burden of demonstrating the remuneration sought is reasonable, regardless of whether the remuneration is to be determined following objections by interested parties at a formal hearing, or whether the assessment is undertaken 'on the papers' in the absence of the public and without attendance by the claimant.[25]

Nature of substantive objections to remuneration claim

34 As previously noted, due to its unresolved concerns about the liquidators' conduct in connection with the litigation mentioned earlier and the sale of Barokes' business, Daiwa makes a number of substantive objections to items claimed by the liquidators in relation to those matters. Daiwa submits that those concerns should be taken into account in the remuneration determination on the basis that allegations of unsatisfactory conduct or breach of duty are relevant to whether the work was 'properly performed' under s 60-12(a) of the Practice Schedule. Further, despite the Court previously declining to delay consideration of the remuneration claim to enable Daiwa to further investigate its concerns about the liquidators' conduct and to commence any proceedings against the liquidators, Daiwa maintains that the Court should exercise its discretion to defer approval on the basis that it cannot now be satisfied that the remuneration claimed is reasonable.

35 The volume of material relied upon by Daiwa is considerable in the context of the remuneration sum claimed. I have endeavoured to extract and summarise Daiwa's concerns from that extensive material below.

36 Daiwa objects to items relating to the Japanese litigation on the basis that:

(a) Daiwa had been successful in defending the Japanese litigation which was held by Sifris J to be based on an 'ill-founded allegation made against it' for which it 'has been entirely vindicated';[26]

(b) Mr Stokes had likely caused Barokes to commence the Japanese litigation without approval of the Barokes board and at a time when he was in dispute with Daiwa about the management of Barokes;

(c) notwithstanding the above matters, the liquidators maintained the Company's appeal in the Japanese Intellectual Property High Court without first obtaining independent legal advice in relation to the Japanese litigation and instead relied on advice initially obtained by Mr Stokes;

(d) after the sale of Barokes' business, but whilst the appeal before the Japanese Intellectual Property High Court was pending, the liquidators granted an interim license for use of relevant patents to Intelligent Packaging (the purchaser of the business).[27] Following the unfavourable determination of the appeal by the Japanese Intellectual Property High Court on 29 August 2019, the liquidators proceeded to commence a formal transfer of Barokes' intellectual property to Intelligent Packaging;[28]

(e) on 8 October 2019, the liquidators also granted Intelligent Packaging a power of attorney to pursue a further appeal in the Supreme Court of Japan, pending final completion of the transfer of intellectual property.[29] Despite previous indications to creditors that the liquidators did not intend to pursue the Japanese litigation,[30] on 11 October 2020, the Company commenced the further appeal, lodging documents which attached the relevant power of attorney.[31] Daiwa queries who is conducting this further appeal in the Japanese litigation and on what basis; and

(f) moreover, the above steps do not sit comfortably with what is set out in the first Koutsoukos affidavit, in which Mr Koutsoukos explains that following the unfavourable judgment of the Japanese Intellectual Property High Court on 29 August 2019, 'the liquidators are no longer pursuing this claim'.[32]

37 I note in passing that some of these matters fall outside the relevant period (being 13 May 2019 to 31 August 2019), although they relate to litigation which was on foot during the relevant period.

38 As regards the German litigation, Daiwa submits that due to the limited information provided by the liquidators, the continued prosecution by the liquidators of the German litigation appears to lack a clear and detailed justification as to its merits. It is also said that the liquidators have failed to obtain independent legal advice concerning the German litigation.

39 Daiwa's concerns about the liquidators' conduct in the sale of the Company's business arise from a detailed chronology of events set out in the Price affidavit which can be summarised as follows:

(a) a document dated 18 February 2019 and styled 'Business Information Memorandum' specifically excluded from the sale, any current or future claims of Barokes with respect to infringement of its patents;

(b) during the course of the sale campaign, Daiwa indicated its interest in acquiring the business along with the current and future claims associated with the Company's patents. As the defendant to the Japanese litigation, Daiwa was an obvious candidate to purchase the claim and thereby bring the litigation to an end. Given Sifris J's characterisation of the Japanese litigation as 'ill-founded', a responsible liquidator ought to have considered such an option in realising value for Barokes;

(c) during a meeting between representatives of Daiwa and the liquidators on 13 March 2019, the liquidators did not suggest the rights in connection with the Japanese litigation would be included in the sale of the Company's business;

(d) on 15 March 2019, Daiwa made a first non-binding indicative offer to acquire the business. This offer included the acquisition of the rights arising from the Japanese litigation. It then made a second non-binding indicative offer on 16 April 2019 which excluded the rights to the Japanese litigation. On the following day, the liquidators indicated they had received a competing cash offer to which Daiwa's second offer was 'significantly inferior'. Later that day, Daiwa made a third non-binding indicative offer;

(e) this third offer was rejected by the liquidators on 18 April 2019, in preference for another which was ostensibly more favourable. However, this assessment apparently involved an allowance of debts claimed by the minority shareholders of Barokes which were questionable and apparently not admitted in the winding up.[33] Daiwa then made a fourth non-binding indicative offer on 19 April 2019 entailing a cash payment of AUD$3 million and the waiver and release of debts worth AUD$3.5 million.[34] This fourth offer was also rejected by the liquidators that same day, on the basis that they had 'progressed with another offer' and were 'not prepared to reopen the negotiations'.[35] According to Daiwa, this was in circumstances where the fourth offer proposed by Daiwa and excluded by the liquidators was superior to any other offer received;

(f) there was no urgency preventing the liquidators from considering Daiwa's fourth offer, given that the joint venturers standing behind the successful bidder had previously been given an extension of time during the sale process. It is also said that Daiwa's fourth offer ought to have been considered because there had been a material change in the joint venturer's offer; namely, the nomination of Intelligent Packaging as the ultimate purchaser;[36] and

(g) further, despite earlier assertions that rights associated with the Japanese litigation were not for sale as part of the Company's business, the eventual purchaser, Intelligent Packaging, appears to have acquired those rights whereas Daiwa was not afforded a genuine opportunity to do so.[37]

40 Again, it should be noted that a number of the events referred to in these objections occurred prior to commencement of the relevant period the subject of this remuneration claim (being 13 May 2019 to 31 August 2019). However, work was certainly undertaken during the relevant period in relation to these matters.

41 Daiwa further submits that as the largest creditor and shareholder of the Company, it is primarily concerned to ensure that the Company is compensated for any loss suffered by reason of the liquidators' impugned conduct. It is currently 'determining the extent to which the liquidators may have breached their duty for the purposes of ascertaining the extent of any claim the [C]ompany may have against them'.[38] Daiwa is also considering the availability of a derivative action under ss 236 and 237 of the Corporations Act[39] in respect of any wrongdoing by the liquidators, or an application for an inquiry into the liquidators' conduct under s 90-10 of the Practice Schedule. Daiwa says its investigations are ongoing, but it has been provided with incomplete information from the liquidators in a piecemeal fashion.

42 I turn now to the critical question of whether the concerns referred to above are relevant to the Court's assessment of the liquidators' remuneration application and, in particular, to s 60-12(a); namely, the extent to which the work by the liquidators was necessary and properly performed.

Extent to which Daiwa's objections should be taken into account

43 Daiwa submits that the concept of work 'properly performed' in s 60-12(a) necessarily excludes work amounting to misconduct or a breach of duty for a number of reasons:

(a) it has long been established that a liquidator is not entitled to remuneration for work conducted in breach of his or her duties and therefore any established breach of duty or conflict of interest is relevant to a remuneration determination.[40] It is undesirable for the Court to finally determine a liquidator's remuneration where there are unresolved issues regarding his / her performance.

(b) the phrase 'properly performed' was first introduced into s 60-12(a) but was not found in its legislative predecessor, s 473(10)(a) of the Corporations Act. Unless the court is able to consider questions of breach of duty or concerns about unsatisfactory conduct of a liquidator under s 60-12(a), the words 'properly performed' would be otiose;

(c) use of the phrase 'necessary and properly performed' in s 60-12(a) directs attention both to the necessity of the particular type of work and to the way in which that work was carried out. This is reinforced by the other factors set out in s 60-12, which empower the Court to consider qualitative matters when determining an application for remuneration; for example, s 60-12(d), which allows the Court to consider the 'quality of the work performed, or likely to be performed';

(d) a liquidator bears the onus of establishing that his / her remuneration claim is reasonable, especially where the material suggests there is a serious question to be tried in relation to a liquidator's conduct. For this reason, and because remuneration determinations are intended to be final (see s 60-11(5) of the Corporations Act), until there has been resolution of concerns regarding a liquidator's conduct, it is not possible for the Court to determine whether work has been 'properly performed' and whether the remuneration claimed is reasonable;

(e) it is unnecessary for the Court to determine on a final basis whether there has been a breach of duty. Instead, the Court should exercise its discretion to defer approval on the basis that it is not now in a position to be satisfied that the remuneration is reasonable; and

(f) any payment now from the Company's assets to meet the liquidators' remuneration would prejudice the Company and, by extension, its creditors, including Daiwa.

44 In making its submissions, Daiwa places particular reliance on the decision of Black J in Re VPlus Superstores[41]. In that case, the applicant liquidators sought orders pursuant to the now repealed ss 449E(1)(c) and 473(3)(b)(ii) of the Corporations Act, that their remuneration arising from the voluntary administration and subsequent creditors' voluntary liquidation of certain companies within a corporate group be paid out of the companies' assets. A respondent objector served notice of objection to the fees claimed by the applicants, relying upon evidence filed in other proceedings. In those other proceedings, the objector challenged the appointment of the applicants and claimed that their conduct had caused the companies to cease trading, thereby detrimentally impacting upon their value. It was further alleged that the applicants had failed to take necessary steps to sell the assets of the companies which had contributed to the companies' subsequent liquidation. The objectors contended that most, if not all, of the fees claimed by the applicants should ultimately be disallowed and that the remuneration assessment should be deferred pending the determination of the other proceeding. The applicants, on the other hand, pressed for the determination of their remuneration claim without delay.

45 After noting that the Court's role was 'to quantify the amount to be paid in satisfaction of an independently existing statutory entitlement to the administrator or liquidator to remuneration, in circumstances that there is no expectation that he or she should act gratuitously',[42] his Honour went on to say that:

It is well-established, and it was not contested in the application before me, that a finding of unsatisfactory conduct by the Applicants, in the sense of conduct in breach of duty or involving serious failures or misconduct on their part, may affect their entitlement to remuneration: Re Kal Assay Southern Cross Pty Ltd (1992) 9 ACSR 245; Re Addstone Pty Ltd; Ex parte Macks (1998) 30 ACSR 177; Re Anderson Group [[2002] NSWSC 764, [15]ff]; Paul's Retail Pty Ltd v Morgan [2009] NSWSC 122; (2009) 76 ACSR 26.[43]

46 Ultimately, however, his Honour resolved to approach the remuneration determination as follows:

It seems to me that the preferable course in this case, in order to bring about the most expeditious and efficient resolution of the Applicants' claim to remuneration, is ... to refer the matter to the Registrar to determine the amount of remuneration properly payable, without reference to the objections raised ... in the other proceedings. If the other proceedings are ultimately unsuccessful, they will then have no impact upon the amount of the remuneration as determined by the Registrar. If they are ultimately successful, in whole or in substantial part, then the Court may need to adjust the amount of remuneration payable by the Applicants, having regard to the determination between the parties in the other proceedings. Following the Registrar's [determination] ... a Judge may make a further determination whether then to fix the Applicants' remuneration on a final basis; or to order an interim payment in the manner adopted in [Onefone Australia Pty Ltd v One.Tel Ltd (in liq) [2012] NSWSC 404]; or to further defer the matter pending the progress of the Other Proceedings.[44]

47 A similar course was favoured by Barrett J in Re Anderson Group.[45] However, in that case, the applicant was a former liquidator who had resigned pursuant to consent orders in a proceeding for his removal. Whilst Barrett J was prepared to proceed on the basis that unsatisfactory conduct by a liquidator could be taken into account in fixing his / her remuneration,[46] his Honour noted that the Court would need to take considerable care in doing so:

A liquidator has ... an entitlement to be remunerated and it would not be right for all and any complaints of misfeasance to stand in the way of that unless there were seen to be substance to them. There must be an appropriate balancing of the right to remuneration against the need for investigation of the alleged misfeasance, with recognition of the position of an official liquidator as an officer of the court who conducts the winding up ordered by the court. It is clear that findings of wrongdoing on the part of such an officer will not be lightly made and would necessarily be based on facts established by evidence adduced, tested and scrutinised in the usual way.[47]

48 Given the absence of an extant proceeding by which the conduct of the former liquidator could be properly examined, his Honour resolved to split the remuneration assessment into two stages. The first stage involved a determination by a registrar of the remuneration claim without regard to the substantive allegations. The second stage involved a judge evaluating the allegations made by the objector to assess their impact on the remuneration determined as part of the first stage.

49 Whilst Re VPlus Superstores and Re Anderson Group both suggest that unsatisfactory conduct or breach of duty by an external administrator may bear upon his / her entitlement to remuneration, they also clearly establish that the remuneration claim should not be disallowed, in whole or part, in the absence of actual findings by a court of such conduct or breach of duty. Any such findings would, of course, need to be based upon facts established by evidence which is tested and evaluated in the usual way as part of a curial process.[48]

50 I should also note that there is tension between the views expressed by Barrett J in Re Anderson Group about the relevance of unsatisfactory conduct or breach of duty to a remuneration assessment and his Honour's statements of principle in the later decided case of Paul's Retail Pty Ltd v Morgan[49] which concerned a review of a voluntary administrator's remuneration. In the latter decision, Barrett J said:

The assessment whether the initially fixed sum is fair and reasonable will be made in the light of all relevant circumstances brought to the court's attention upon the review. These may include circumstances that were not known or foreseen at the time the remuneration was fixed. They may include the circumstance that some work actually done was outside the proper performance of the administrator's functions or was unnecessary, although allegations of misfeasance or breach of duty should not be determined upon a review of remuneration; also notions of punishment are foreign to the process: [Re Anderson Group].[50]

51 Similarly, in Re Palmer; Ex parte Taylor,[51] Spender J explained that the purpose of a remuneration assessment of a trustee in bankruptcy was not to 'discipline [the trustee] by the imposition of any penalty, but it is to fix the remuneration to which a trustee is entitled by the [Bankruptcy Act 1966 (Cth)] at a figure that is reasonable in all the circumstances'. [52]

52 In Re F Basile,[53] a director of an insolvent trustee company objected to a liquidator's remuneration claim, including by criticising the liquidator for dealing with trust assets and for bringing an application to be appointed as receiver over those assets. Justice Sifris (as his Honour then was) had earlier terminated the company's winding up and referred the remuneration assessment to an Associate Judge or a Judicial Registrar. In disallowing the director's substantive objections to the remuneration claim, I considered the work undertaken to be reasonable and noted that Sifris J had made no adverse comment about the conduct of the liquidator in dealing with the trust assets or in making the application to be appointed receiver.[54] In any event, the question of whether a remuneration assessment should permit consideration of the conduct of an external liquidator was not squarely raised by the parties.

53 In Re Mossgreen Pty Ltd (in liq),[55] Perram J considered that whilst s 60-12(a) of the Practice Schedule called for an assessment of whether there was a necessary and proper connection between the work performed and the external administration,[56] the composite expression 'necessary and properly performed' found in s 60-12(a) should not be read as requiring that the work be absolutely necessary to the minimum discharge of an external administrator's statutory duties.[57] In arriving at this conclusion, his Honour accepted the submission that external administrators should be permitted a 'measure of discretion' in the work that they perform.[58] In this regard, his Honour endorsed the observation of Young J in Burns Philp Investment Pty Ltd v Dickens (No 2),[59] that a court must give liquidators 'a fair degree of latitude where they have incurred expense as a result of the exercise of the commercial judgment even if there is a loss to the company by so doing'.[60]

54 There are also cases which have considered whether expenses incurred by a liquidator or administrator have been 'properly incurred' for the purposes of ss 556(1)(a) and 556(1)(dd) of the Corporations Act (provisions dealing with the priority of payments in a liquidation). Justice Santow in Re HIH Insurance Ltd (in liq)[61] held that the term should be interpreted broadly and 'viewed in the context of the functions and duties of a liquidator', including those directed to realising and getting in the assets of the company as soon as practicable.[62] In Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd,[63] Warren J (as her Honour then was) referred to Santow J's decision and other authorities in coming to the view that, in determining whether an expense has been 'properly incurred', it is appropriate to consider the expense in the context of the duties of the external administrator.[64]

55 In Adsett v Berlouis,[65] the Full Court of the Federal Court of Australia (comprising Northrop, Wilcox and Cooper JJ) considered the meaning of the term 'properly incurred' as it related to a claim for reimbursements by a trustee in bankruptcy for litigation costs and remuneration. The Full Court looked to the seminal case of Re Beddoe,[66] which concerned the right of a trustee to be reimbursed out of the trust estate. In applying the principles emerging from this earlier authority, the Full Court held that in order to be 'properly incurred', so as to qualify for reimbursement, expenditure needed to be 'reasonably, as well as honestly, incurred'.[67] Their Honours further explained:

In principle, there is no difference in the approach to be taken when the questions of the trustee's right to indemnity and right to remuneration fall for consideration. That is, the trustee's right to remuneration is limited to work properly undertaken. In this context, 'properly' means work reasonably and bona fide undertaken for the purpose of administering the estate or performing any public duty imposed by the [Bankruptcy Act 1966 (Cth)], conformably with the trustee's duty to perform the work with reasonable care and skill and in an efficient and economical way.[68]

Legislative context of s 60-12(a)

56 It is important to construe s 60-12(a) in its context. The provision does not operate independently of the other subparagraphs found in s 60-12. Whether work is 'necessary and properly performed' is but one of a number of factors which a court may have regard to in assessing the reasonableness of a remuneration claim. Further, whilst ss 60-5 and 60-10 also speak of remuneration that an external administrator is entitled to receive for 'necessary work properly performed' (a slightly different phrase to that used in s 60-12(a)), where the assessment of that remuneration is required to be made by a court under s 60-10(1)(c), s 60-12 makes clear that the assessment must occur by reference to the reasonableness of the claim. Reasonableness is the touchstone of the provision. The submissions of Daiwa have the effect of elevating s 60-12(a) to a level of importance above the other relevant factors set out in s 60-12 and the overarching criterion of reasonableness.

57 There is a necessary level of overlap between a number of the factors set out in s 60-12. For example, like s 60-12(a), s 60-12(d) is also concerned with the quality of the work performed, or likely to be performed, by the external administrator. Overlap can also be found between s 60-12(e) (which deals with the relative complexity of the work performed, or likely to be performed) and s 60-12(f) (which examines the extent to which extraordinary issues presented in the external administration).

58 Further, s 60-12 is found within Part 3 of the Practice Schedule, along with certain provisions which give the Court powers to make any orders in relation to a particular liquidator or administrator or to inquire into a particular administration. For example, s 45-1 of the Practice Schedule allows the Australian Securities and Investments Commission ('ASIC') to commence an application to the court for an order in relation to a particular registered liquidator. Section 90-10 of the Practice Schedule facilitates an inquiry into the external administration of a particular company.

59 In Hall v Poolman,[69] the New South Wales Court of Appeal confirmed that an inquiry into a liquidator's conduct under the former s 536 (a legislative predecessor to s 90-10) involved three distinct stages. In BL & GY International Co Ltd v Hypec Electronics Pty Ltd,[70] Barrett J usefully explained the process this way:

At the first stage, the court, upon application made, decides whether an inquiry into the liquidator's conduct is warranted. In [Hall v Poolman], the Court of Appeal pointed out that...there need not be a prima facie evidentiary case of lack of faithful performance or observance of requirements. But the applicant must point to something about the liquidator's conduct that is a sufficient basis for making an order for inquiry; and it is desirable that this be articulated in pleaded form: Re Fox Home Loans Pty Ltd [2005] NSWSC 1050. Once such a basis has been shown, the court has a discretion whether or not to order an inquiry.

If the court sees fit to order an inquiry, the proceeding moves to its second stage and the inquiry itself takes place. Despite being an 'inquiry', the second stage must be structured so as to be adversarial in nature, with the liquidator enjoying all the usual safeguards and protections: [Commissioner for Corporate Affairs v Harvey [1980] VicRp 64; [1980] VR 669].

The task of the court at the second stage is to make a judgment about the liquidator's conduct, viewed in the light of the whole of the requirements applying to liquidators and taking account, of necessity, of the circumstances of the particular winding-up. What the liquidator ought properly to have done will be conditioned by circumstances. Thus, for example, a liquidator without funds will not be expected to act in the same way as an adequately funded liquidator. In the same way, a liquidator has a degree of freedom in allocating available resources and prioritizing work. Leaving to one side matters of dishonesty, lack of due care and obvious failure to address the decision at hand, it can never be said in the abstract that a liquidator who fails to take a certain step (or, for that matter, one who takes a certain step) thereby engages in misconduct. Context is all-important.

If, having heard the competing submissions at the second stage, the court decides that the liquidator's conduct was in some way deficient, it embarks upon the third stage and decides whether or not to make an order. The nature of the order will depend on the nature of the deficiency found. As noted above, the orders at the court's disposal include an order that the liquidator make good loss occasioned by the liquidator's deficient conduct. The predominant consideration, however, is effectuation of the purpose for which s 536 exists and, therefore, what is needed by way of regulation, supervision, discipline and correction for the due administration of the winding-up in the public interest.[71]

60 In appropriate circumstances, the Court may also inquire into the external administration of a company of its own initiative pursuant to s 90-5 of the Practice Schedule. Under subdivision C of Part 3 of the Practice Schedule, a registered liquidator may also be appointed to review the external administration of a company by ASIC, the court, or by resolution of creditors. In addition to enabling external administrators to obtain directions from the court, s 90-15 also bestows upon the court a range of disciplinary powers it may exercise. For example, orders may be made in relation to: the costs of an action taken by the external administrator (s 90-15(3)(d)); any loss that the company has sustained because of a breach of duty by the external administrator (s 90-15(3)(e)); and an order requiring a person to repay to a company, or the creditors of the company, remuneration paid to the person as external administrator of the company (s 90-15(3)(f)). These remedial orders would fall within the third stage of an inquiry into an external administrator's conduct as described above. Section 90-15 also provides an avenue to creditors and others to challenge the decisions of external administrators. Persons who have standing to seek orders under s 90-15 are specified in s 90-20 to include those with a financial interest in the external administration of the company (s 90-20(1)(a)). A creditor would no doubt have standing to seek remedial or disciplinary orders under s 90-15.

61 The existence in Part 3 of the Practice Schedule of other legislative machinery which is explicitly concerned with an external administrator's conduct suggests that s 60-12(a) has a narrower compass. The court's function in a remuneration application under s 60-10(1)(c) is to determine the reasonable remuneration of an external administrator for his / her services. Section 60-12 sets out factors that a court may take into consideration in making that determination, including the extent to which work by the external administrator was necessary and properly performed (s 60-12(a)). But a remuneration determination does not facilitate or support a process of inquiry into the conduct of an external administrator or a review of his / her decision. Nor does it permit disciplinary or remedial orders being made for conduct which falls short of the standard expected of an external administrator.

62 Whilst by no means determinative, a brief review of various extrinsic material also supports a narrower interpretation of s 60-12(a). Section 60-12 was introduced together with the balance of the Practice Schedule by the Insolvency Law Reform Act 2016 (Cth). The Second Reading Speech to the Insolvency Law Reform Bill 2015 (Cth) makes reference to a Senate Economics References Committee report titled, The Regulation, Registration and Remuneration of Insolvency Practitioners in Australia: The Case for a New Framework ('Report').[72] One of the documents referenced in the Report was a 2008 Code of Professional Practice produced by the then Insolvency Practitioners Association of Australia ('IPAA') ('the 2008 Code').[73] The Report noted that the 2008 Code required, among other things, insolvency practitioners to 'provide sufficient, open and clear disclosure when making a claim for remuneration'.[74]

63 The 2008 Code entitled a practitioner 'to claim remuneration and disbursements, in respect of necessary work, properly performed in an administration'.[75] The phrase 'properly performed' was usefully explained in the 2008 Code as follows:

In order to claim remuneration for necessary work, the Practitioner will need to establish that the work was properly performed.

Work done poorly, or, at worst, improperly and needing to be reworked should not be charged.

Examples

• It may have been necessary to inquire of all property titles countrywide, but if the staff member doing that work pursued inquiries through the wrong agency because of ignorance or inattention, then that work was not done properly.

• It may have been necessary for the Practitioner to have convened a meeting of creditors, but if work done in convening that meeting took an inordinate amount of time, through the inexperience of the staff member, it was not done properly. While an allowance is made for junior staff through the lower hourly rate, where activity is redone, care should be taken to ensure that the amount charged reflects the true value of the work.

• Work performed to convene an invalid meeting would not be properly performed.

Creditors are entitled to expect that administration funds are not expended on work that was not properly performed.[76]

64 The current equivalent of the 2008 Code is the Australian Restructuring Insolvency and Turnaround Association ('ARITA') Code of Professional Practice: Insolvency Services (4th ed, 2020) ('the 2020 Code'). It defines 'proper' as 'professional work that is performed in an effective and efficient manner in an Administration'.[77] ARITA has also published a practice statement on remuneration[78] which includes discussion on what is 'necessary and proper' and states that: '[a] key aspect of ensuring that the necessary and proper remuneration is claimed for Professional Services performed for an Administration is to ensure any work is completed in the most efficient and effective manner'.[79]

Meaning of phrase 'properly performed' in s 60-12(a)

65 Having regard to the legislative setting of s 60-12(a) and the authorities reviewed above,[80] I am of the opinion that the phrase 'properly performed' in s 60-12(a) goes to the manner and quality of the work undertaken by the external administrator rather than an evaluation of his / her conduct in performing that work. In this context, work that is 'properly performed' is work that is done efficiently, satisfactorily, and competently. That is the natural and ordinary meaning of the term.

66 In conducting a remuneration assessment, the Court may conclude that certain work performed was inefficient, unsatisfactory, or lacking in competence. By way of example, poor quality work that requires correction or repetition may not be remunerated on the basis that it is not properly performed and the time claimed should be disallowed or discounted. Similarly, an inappropriate and inefficient allocation of work across the hierarchy of staff within an external administrator's office may suggest that the work was not properly performed. By way of additional example, a disproportionate allocation of time to a particular task, regardless of the charge out rate of the person or persons who performed the work, may result in the discounting of that work on the basis that it was not properly performed.

67 Further, to be 'necessary and properly performed', the work must have a bona fide connection to the functions and duties of an external administrator.[81] It is important, of course, to allow external administrators a measure of latitude and discretion when considering the relationship between the work performed and the role of the external administrator.[82] Where work is not sufficiently related to the discharge of the external administrator's functions, that work may not be allowed as part of a claim for remuneration.

68 Here, Daiwa has not identified any specific work undertaken by the liquidators which is said to be unnecessary, inefficient, unsatisfactory, or lacking in competence. For example, Daiwa does not say that the liquidators should not have sold Barokes' business, or that they took too long to sell the business. Nor is any work said to be improper in the sense of being unconnected with the liquidators' duties and functions. Instead, Daiwa's objections are concerned with the conduct of the liquidators in performing their work, including allegations of unsatisfactory conduct, wrongdoing, and breach of duty.

69 The court's function in a remuneration application is solely to assess whether the external administrator's fees are reasonable and to determine what those fees should be. However, it is not a forum to inquire into the conduct of an external administrator. Nor should it be used as a mechanism to discipline or punish an external administrator.[83] Because the remuneration assessment procedure is a summary one, it is neither appropriate nor possible to examine whether there has been unsatisfactory conduct by an external administrator, including conduct lacking in propriety or tantamount to breach of duty. Were it otherwise, the process could encourage satellite litigation by aggrieved parties with an interest in the external administration. It could also provide an opportunity for a collateral attack on the actions of an external administrator by a party who is otherwise the subject of investigations or claims arising from the company's affairs. Either scenario could unnecessarily delay the finalisation of an external administration. As previously noted, allegations of misconduct, misfeasance, or breach of duty need to be properly tested through evidence, and natural justice afforded to the external administrator.[84] As discussed further below, there are other provisions within the statutory regime which better accommodate the ventilation of grievances by interested persons.

70 Whilst Daiwa is correct in its submission that a liquidator has the onus of establishing that his / her remuneration claim is reasonable, a liquidator or other external administrator does not, in my view, bear the onus of disproving allegations of unsatisfactory conduct, misconduct, impropriety, or breach of duty as part of the remuneration claim. It is for the objecting party to make out such allegations in a separate and more appropriate legal proceeding, such as an inquiry under s 90-10 of the Practice Schedule or a review of an external administrator's decision under s 90-15.

71 Because of the availability of these or other legal avenues to Daiwa, I do not accept its submission that the Court should exercise its discretion to defer approval of the remuneration claimed on the basis that it is not now in a position to be satisfied that the remuneration is reasonable, and in order to allow Daiwa further time to scrutinise the conduct of the liquidators and to commence any proceedings against them. In the absence of any separate proceeding by which Daiwa seeks to impugn the conduct of the liquidators, it is difficult to see how it would be a legitimate exercise of the Court's discretion to defer the remuneration determination for an indeterminate period of time (or even for several months). Further, any potential prejudice to Daiwa or its creditors occasioned by the remuneration application being determined at this time could be later moderated by s 90-15(3)(f) of the Practice Schedule, in the form of an order requiring the liquidators to repay any remuneration approved by the Court as part of this process in the event that allegations against the liquidators are ultimately substantiated. Moreover, any such prejudice must be balanced against the prejudice to the liquidators as a result of being deprived of the ability to be paid remuneration for work undertaken for the benefit of Barokes until some undefined future time.

72 Had Daiwa already commenced an inquiry or other substantive proceeding to investigate or impugn the conduct of the liquidators prior to the filing of this remuneration application, the position may have been different and the Court might have deferred the assessment pending the outcome of such proceedings. In the event that a substantive proceeding resulted in adverse findings about the conduct of the liquidators, the Court would be permitted to have regard to such findings under s 60-12(m) of the Practice Schedule on the basis that they are 'other relevant matters'. But at present there are no such findings. The objections raised by Daiwa in this remuneration assessment are presently no more than untested allegations about the conduct of the liquidators.

73 It follows that the various allegations made by Daiwa against the liquidators will not be taken into account in this remuneration determination.

74 In my view, the liquidators have established a prima facie entitlement to their claim for remuneration on the totality of the material relied upon. Set out below are a series of general rulings I have made in relation to the remuneration claim. In making these rulings, I have had regard to the principles and statutory provisions referred to earlier and the material filed in support of the application. I have considered the most relevant factors set out in s 60-12 of the Practice Schedule and grouped similar or overlapping factors for ease of reference.

Extent to which work was necessary and properly performed and quality of work performed (s 60-12(a) and s 60-12(d))

75 I am satisfied that the work undertaken by the liquidators during the relevant period was, with minor exception,[85] both necessary and properly performed. The evidence suggests the work has been done efficiently, satisfactorily and competently. The work undertaken also appears to have met the standard expected of a competent external administrator.

76 The tasks performed were necessary, given the nature and characteristics of the business operated by Barokes and the substantial litigation inherited by the liquidators upon the commencement of the liquidation. A significant proportion of the work performed (around a third of the time claimed) related to the sale of Barokes' business which yielded over AUD$2.74 million.[86] Further time was allocated to continuing to trade the business pending its sale. Had appropriate time not been devoted to the sale of the business, it is unclear whether this result would have been achieved or whether any sale would have been delayed.

77 Many of the tasks carried out were also essential in nature and consistent with the liquidators' fundamental duties and obligations. These tasks included: reviewing the historical features of Barokes' business to facilitate its sale; undertaking a stocktake; trading on, pending completion of the sale; preparing and reconciling financial statements; reviewing specific transactions (including voidable transactions); administering the Company's bank account; calculating employee entitlements (including superannuation); collecting money from debtors (at least $639,000 was collected from a total debtor ledger of over $1 million);[87] dealing with the Australian Taxation Office in relation to GST; investigating possible breaches of the Corporations Act by directors and officers for the purpose of a statutory report under s 533 of the Corporations Act; adjudicating on proofs of debt and preparing necessary reports to creditors.

Complexity of work performed, extraordinary issues and level of risk (ss 60-12(e), 60-12(f) and 60-12 (g))

78 I accept that the liquidators were required to deal with a number of complex issues, including maintaining Barokes' business as a going concern and negotiating and completing the sale of the business. The management of various overseas patent applications (including in Russia, the United States, Germany and Taiwan) and the conduct and oversight of the Japanese litigation and the German litigation raised complex and somewhat extraordinary issues given the requirement to engage with foreign legal systems. In addition, dealing with the invalidated transactions involved a level of complexity. Those transactions were worth over $283,000 and the liquidators' claim against a recipient of those funds was successfully resolved for $205,000.[88]

79 I also accept the submission that the liquidators were required to accept a higher level of risk and responsibility than is usually the case. The trading on of Barokes' business as a going concern and the engagement in a protracted sale campaign exposed the liquidators to a level of risk. This is especially so given the key bidding parties were shareholders (or affiliated with shareholders) of the Company and had been involved in the prior acrimonious oppression proceeding and winding up application.

Value and nature of property dealt with (s 60-12(h))

80 As previously noted, the sale of the Barokes' business produced around $2.74 million in funds.[89] It also included an assumption of all current and future claims of certain related parties, including Mr Stokes and Mr Barics.[90]

81 In addition, the German litigation represents a significant claim in the liquidation. The liquidators have reported to creditors that this negligence claim against Barokes' former legal advisers is estimated to be worth between €5 million and €10 million.[91] In Australian dollars, the claim may be worth up to $16.3 million, which after the deduction of approximately $7 million in legal fees and litigation funder premiums, could potentially deliver approximately $11.74 million to unsecured creditors and over 99 cents in the dollar in respect of their claims.[92] In the event the German litigation proves to be unsuccessful, the unsecured creditors will still likely receive approximately 19.5 cents in the dollar on account of the realisations from the sale of Barokes' business.[93] Given the value of this claim and its significance to creditors, I consider that the work undertaken and time spent by the liquidators in connection with this matter was reasonable in all the circumstances. As the German litigation progresses, the liquidators will no doubt be able to update creditors as to its status and ongoing viability.

Number, attributes and conduct of the creditors (s 60-12(i))

82 There were 77 creditors who participated in a meeting of creditors held on 3 October 2019, including by proxy.[94] Unsecured creditors are owed approximately $11.8 million by the Company.[95] In addition to dealing with the usual enquiries from creditors and preparing reports to creditors, the liquidators were required to adjudicate upon a contentious proof of debt submitted by Daiwa for an amount of over $10.8 million in respect of monies loaned to Barokes pursuant to various loan agreements.[96] The minority shareholders disputed the existence of the loans and contended that monies paid represented share capital instead. This necessitated detailed investigation by the liquidators and their external advisors. Ultimately, the liquidators admitted Daiwa's debt in full on the basis that the monies paid were unsecured loans.[97]

83 In addition, during the trade on period, there was a dispute between the liquidators and a supplier concerning the validity of a purchase money security interest claim under the Personal Property Securities Act 2009 (Cth) worth more than $72,000.[98] That dispute was ultimately settled commercially by the liquidators on or around 6 June 2019.[99]

84 Following the submission of its fourth offer to acquire the Barokes business on 19 April 2019, and throughout the relevant period, Daiwa raised numerous issues and queries in relation to the manner in which the liquidators had conducted the sale of the business.[100] The liquidators responded to Daiwa's request for information and documentation in connection with the transaction, although Daiwa complains that these responses are unsatisfactory. The correspondence passing between the liquidators' lawyers and Daiwa's lawyers is extensive and voluminous and can be found in exhibit TRP-1 to the Price affidavit. Many of the concerns expressed by Daiwa in their correspondence form the basis of the substantive objections raised in this remuneration application. The liquidators' remuneration schedule reveals a number of items relating to correspondence received from Daiwa about the sale.

85 The liquidators seek approval for their remuneration on a time-cost basis. An updated remuneration schedule incorporating Daiwa's objections is shown as an exhibit to the Second Koutsoukos affidavit.[101] The remuneration schedule records the time spent by the liquidators and each of their staff on specific tasks during the relevant period and includes meaningful narrations of the work performed. The work itself has been allocated to the following distinct categories by the liquidators: assets; creditors; employees; trading on Barokes' business; investigations; proofs of debt / dividends; and administration.[102] The liquidators have also produced a table setting out, in summary form, the name of each person who worked on the liquidation during the relevant period, their role, and the time billed by each person.[103]

86 In Sakr Nominees, the New South Wales Court of Appeal held that a time-based approach to determining a liquidator's remuneration is one of a number of methods available to a Court.[104] I am satisfied that a time-based method for determining the liquidators' remuneration is appropriate in this case, as distinct from any other method of calculation, such as an ad valoreum approach. The campaign to sell Barokes' business, and the management and oversight of the Japanese litigation and the German litigation constituted work which was inherently difficult to predict and which was more amenable to time-based calculations. Moreover, a time-based method of charging more accurately reflects the time actually spent on each task.

87 The summary table provided by the liquidators usefully identifies the number of hours spent by each operator, the relevant hourly rate, and the gross value of work undertaken (exclusive of GST).[105] A number of the operators identified in the summary table and the remuneration schedule have two hourly rates. As explained by Mr Koutsoukos, one rate corresponds to the rates set out in the liquidators' consent to act and the other is a revised and reduced rate.

88 I am satisfied that the rates charged are within the range typically charged by insolvency practitioners. I am also of the view that the rates are fair and reasonable given the nature and features of the liquidation.

89 The amount of $129,060.50 claimed by the liquidators in this remuneration application is a sum excluding GST. The liquidators are entitled to include GST in their remuneration claim because work has been undertaken and services provided in the liquidation of Barokes which represent a taxable supply under s 9.5 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth).[106] For the sake of simplicity, I will assess the remuneration figure exclusive of the GST component and then note the final remuneration figure, as allowed, to be an amount 'plus GST'.[107]

90 The summary table prepared by the liquidators reveals that just over 305 hours were worked by 9 people across all levels of seniority within the liquidators' firm. Of this total number of hours: 114 hours (or approximately 37%) were worked by Mr Coyne as appointee at a charge out rate of $575.00 per hour (plus GST) for more than half of this time, and $440.00 per hour (plus GST) for the remainder; 69 hours (or approximately 23%) were worked by Mr Koutsoukos as appointee at a charge out rate of $575.00 per hour (plus GST) for the majority of this time, and $440 per hour (plus GST) for some of the work; around 65.3 hours (or approximately 21%) were worked by Joshua May as a senior accountant and then supervisor at an average rate of $355.00 per hour (plus GST); and almost 40 hours (13%) were charged by Miles Georgeson as an intermediate accountant, at a rate of around $205.00 per hour (plus GST).

91 Mr Koutsoukos explains that the liquidators reviewed the remuneration schedule 'to ensure that all work was undertaken by appropriate persons with the requisite experience and seniority and with the appropriate cost base'.[108] He further explains that '[t]o ensure efficiency and fairness where possible, the [l]iquidators also made adjustments to the cost base applied for certain tasks'.[109] Where the liquidators undertook tasks that would ordinarily be assigned to a more junior member of staff (such as a manager or senior manager) because delegation was apparently not possible, the liquidators adjusted their normal hourly rate from $575.00 to a more appropriate and commensurate hourly rate of $440.00.[110] As a consequence of this adjustment, it appears that $8,775 has been written off by the liquidators[111] in arriving at the final sum claimed of $129,060.50.

92 Because a number of tasks within the liquidation of Barokes are complex and have become contentious as a consequence of extensive exchanges with Daiwa as the majority creditor, I am of the view that this has necessitated a higher level of involvement by Mr Coyne and Mr Koutsoukos as appointees than would otherwise have been the case. I also infer that the adjustments referred to above have been made to address instances of overcharging and an inefficient allocation of resources, or a perception that this had occurred. This was an appropriate step for the liquidators to take in the circumstances to ensure the remuneration claim was reasonable and included work which was both necessary and properly performed.

93 However, despite these adjustments and the writing down of the claim, my review of the remuneration schedule suggests that not all the work performed has been allocated according to the highest and best use of the person performing it. Some of the moderately complex work undertaken by Mr Coyne and Mr Koutsoukos as appointees could have been readily delegated to experienced staff under their supervision, such as Joshua May as a supervisor, whose charge out rate was $355 per hour (excluding GST). Such work included: reconciling invoices; calculating employee entitlements; reviewing correspondence from overseas lawyers regarding pending patent applications; reviewing a liquor licence transfer application associated with the sale of the business; drafting letters to contractors as part of the finalisation of the sale process; and finalising trading accounts post sale.

94 In addition, there are a small number of entries where a disproportionate amount of time appears to have been charged by each of Mr Coyne and Mr Koutsoukos on activities which might reasonably have been expected to occupy less time. Such entries included: an hour spent by Mr Coyne reviewing an email from Russian patent lawyers concerning a pending patent application; almost one and a half hours spent by Mr Coyne reading emails from, and responding to, a German lawyer; and almost two hours spent by Mr Coyne reviewing emails from the liquidators' lawyers regarding litigation fees and trademarks. I am, however, satisfied that these examples are isolated in nature and not representative of any pattern. Further, I have not identified any instances of lengthy internal meetings between members of the liquidators' office, or any duplication or 'double-handling' of work.

95 Having regard to the above, it is both appropriate and efficient to apply a global discount of 3.5% (or approximately $4,517.00) in respect of the liquidators' total remuneration claim. The discount will be applied against the total amount of $129,060.50 recorded in the remuneration schedule and summary table. The remuneration claim will therefore be allowed in the total sum of $124,543.50 (plus GST) in respect of the relevant period.

96 Having regard to the order made by the Court on 21 April 2020 for interim payment of remuneration to the liquidators in the sum of $45,000.00 (plus GST), the Court's final order will entitle the liquidators to be paid a further $79,543.50 (plus GST) in respect of their remuneration for the relevant period. To be clear, this is in addition to the interim amount of $45,000.00 (plus GST) already paid.

97 I will ask the liquidators to prepare a form of order to reflect these reasons.

[1] [2018] VSC 426 ('Knights Quest v Daiwa').

[2] Supreme Court of Victoria proceeding S ECI 2015 307.

[3] Supreme Court of Victoria proceeding S ECI 2015 309.

[4] See affidavit of James Koutsoukos sworn on 9 December 2019 and filed on 24 January 2020 [19], [24]-[26] and the Third Report to Creditors dated 17 September 2019 at exhibit JK-1 to that affidavit.

[5] See the First Han affidavit and the Oakley affidavit.

[6] First Koutsoukos affidavit [6]-[8].

[7] Exhibit JEH-6 to the Second Han affidavit.

[9] Section 473(10) was repealed with effect from 1 September 2017 when s 60-12 came into operation. For an explanation of the commencement machinery and transitional provisions concerning this change see Re Allston Homes (in liquidation) [2017] VSC 500, [8]-[11] ('Allston Homes').

[10] See Michael Murray and Jason Harris, Keay's Insolvency: Personal & Corporate Law and Practice (Law Book, 10th ed, 2018) [10.345].

[11] (1998) 20 WAR 96 ('Venetian Nominees').

[12] [2002] VSC 353, [31] ('ACN 004 323 184').

[13] See Thackray v Gunns Plantations Ltd [2011] VSC 380; (2011) 85 ACSR 144, 162 [60] (Davies J) ('Thackray'); Barbo Group Pty Ltd t/as Alice Roof Tiles v Investment and Construction Enterprise Pty Ltd [2012] VSC 71, [14] (Gardiner AsJ); Re Traditional Values Management Limited (in liq) [2012] VSC 650, [18]-[25] (Gardiner AsJ); Re F Basile & Associates Pty Ltd (in liq) [2016] VSC 690, [30] (Hetyey JR) ('Re F Basile'); Re Upmarket Services Australia Pty Ltd (in liq) [2019] VSC 523, [39]-[40] (Matthews JR).

[14] ACN 004 323 184 [2002] VSC 353, [31].

[15] Ibid [32] (Dodds-Streeton J); Venetian Nominees (1998) 20 WAR 96, 103.

[16] Thackray [2011] VSC 380; (2011) 85 ACSR 144, 162 [60].

[20] Sanderson (as liquidator of Sakr Nominees Pty Ltd) (in liq) v Sakr [2017] NSWCA 38; (2017) 93 NSWLR 459, 471 [59] ('Sakr Nominees').

[21] See Re Twenty-Seventh Android Pty Ltd [2019] VSC 563, [21] (Matthews JR).

[22] Re Graziers' Investment Company Limited (in Liquidation) and GIC Holdings Pty Ltd [2020] VSC 8, [23] (Hetyey JR).

[26] Knights Quest v Daiwa [2018] VSC 426, [144].

[27] See exhibit TRP1 to the Price affidavit, 458-9.

[29] See exhibit TRP1 to the Price affidavit, 443-5, 458-9.

[30] See minutes of meeting of creditors of Barokes held 3 October 2019, exhibit TRP1 to the Price affidavit, 412.

[31] Exhibit TRP1 to the Price affidavit, 445.

[32] The First Koutsoukos affidavit, [21]-[23].

[33] Daiwa's submissions of 15 April 2020, [13]; exhibit TRP1 to the Price affidavit, 414, 432.

[34] Exhibit TRP1 to the Price affidavit, 247-67.

[36] Daiwa's initial objections dated 20 December 2019 [31], shown as exhibit JEH-6 to the Second Han affidavit; the Price affidavit, [112.1(c)].

[37] See Daiwa's initial objections dated 20 December 2019 [32], [35], shown as exhibit JEH-6 to the Second Han affidavit; exhibit TRP1 to the Price affidavit, 458-9.

[38] Daiwa's written submissions dated 11 May 2020 [3].

[39] However, the weight of the authorities suggests that these provisions have no application to a company in liquidation: see Chahwan v Euphoric Pty Ltd t/as Clay & Michel [2008] NSWCA 52; (2008) 65 ACSR 661, 696-9 (Tobias JA, with Beazley and Bell JJA agreeing); Pentridge Village Pty Ltd (in liq) v Capital Finance Australia Ltd (2018) 58 VR 1, [292], [297]-[299] (Connock J); and El-Saafin v Franek (No 2) [2018] VSC 683, [148] (Lyons J); BDO Corporate Finance (Qld) Ltd v Russell [2019] QCA 39, [21] (Fraser JA).

[40] Citing Re VPlus Superstores Pty Ltd (in liq) [2013] NSWSC 662, [12] ('Re VPlus Superstores') and the cases referred to therein.

[41] [2013] NSWSC 662.

[42] Ibid [11], citing Re Anderson Group [2002] NSWSC 764, [21] (Barrett J).

[45] [2002] NSWSC 764, [28]-[31].

[49] [2009] NSWSC 1222; (2009) 76 ACSR 26 ('Paul's Retail').

[51] (1998) 18 FCR 271 ('Re Palmer').

[53] [2016] VSC 690.

[55] (2019) 140 ACSR 331 ('Mossgreen').

[59] (1993) 31 NSWLR 280, 285 ('Burns Philp Investment').

[60] Mossgreen (2019) 140 ACSR 331, 335 [15].

[61] [2001] NSWSC 997; (2001) 39 ACSR 645 ('HIH Insurance').

[63] [2002] VSC 576; (2002) 174 FLR 1.

[65] [1992] FCA 368; (1992) 37 FCR 201.

[66] [1892] UKLawRpCh 180; [1893] 1 Ch 547.

[67] Adsett v Berlouis [1992] FCA 368; (1992) 37 FCR 201, 211-12 (Northrop, Wilcox and Cooper JJ)

[70] [2010] NSWSC 959; (2010) 79 ACSR 558.

[71] Ibid 569-70 [42]-[45]. This formulation was adopted by Sloss J in Westpoint Corporation Pty Ltd (in liq) v Yeo [2018] VSC 705, [301].

1. [72] Senate Economics References Committee, Parliament of Australia, The Regulation, Registration and Remuneration of Insolvency Practitioners in Australia: The Case for a New Framework (Report, September 2010).

[73] IPAA, Code of Professional Practice for Insolvency Practitioners, 2008.

[78] ARITA, Practice Statements Insolvency 8: Remuneration (16 September 2019).

[80] Particularly Burns Philp Investment (1993) 31 NSWLR 280; Adsett v Berlouis [1992] FCA 368; (1992) 37 FCR 201; HIH Insurance [2001] NSWSC 997; (2001) 39 ACSR 645; Paul's Retail [2009] NSWSC 1222; (2009) 76 ACSR 26; Mossgreen (2019) 140 ACSR 331.

[81] Adsett v Berlouis [1992] FCA 368; (1992) 37 FCR 201; HIH Insurance [2001] NSWSC 997; (2001) 39 ACSR 645.

[82] Burns Philp Investment (1993) 31 NSWLR 280; Mossgreen (2019) 140 ACSR 331.

[83] See Re Palmer (1998) 18 FCR 271; Paul's Retail [2009] NSWSC 1222; (2009) 76 ACSR 26.

[84] Re Anderson Group [2002] NSWSC 764, [25].

[85] The minor exception relates to the delegation of work within the liquidators' office and the time spent on some tasks (matters to which I will return).

[86] Third Report to Creditors dated 17 September 2019, at exhibit JK-1 to the First Koutsoukos affidavit.

[88] The First Koutsoukos affidavit, [58]-[62].

[89] Third Report to Creditors dated 17 September 2019, shown as exhibit JK-1 to the First Koutsoukos affidavit.

[94] Minutes of meeting held on 3 October 2019, shown as exhibit JK-2 to the First Koutsoukos affidavit.

[95] Third Report to Creditors dated 17 September 2019, shown as exhibit JK-1 to the First Koutsoukos affidavit.

[96] Exhibit JK-6 to the First Koutsoukos affidavit.

[97] The First Koutsoukos affidavit, [48]-[50].

[102] Ibid; the First Koutsoukos affidavit, [38]-[66]; the Third Report to Creditors dated 17 September 2019, shown as exhibit JK-1 to the First Koutsoukos affidavit.

[103] Exhibit JK-11 to the Second Koutsoukos affidavit.

[104] Sakr Nominees [2017] NSWCA 38; (2017) 93 NSWLR 459, 470 [51]. See also Re Banksia Securities Ltd (in liquidation) (receivers and managers appointed) [2017] NSWSC 540, [55].

[105] Exhibit JK-11 to the Second Koutsoukos affidavit.

[106] Re F Basile [2016] VSC 690, [59]; Allston Homes [2017] VSC 500, [29].

[107] See AAA Financial Intelligence Ltd (in liquidation) ACN 093 616 445 (No 2) [2014] NSWSC 1270, in which Brereton J allowed liquidators' remuneration for an amount expressed as being '(plus GST)'.

[108] First Koutsoukos affidavit, [71].

[111] Exhibit JK-8 to the First Koutsoukos affidavit.