Plaintiffs v First Defendant

2 The Former Administrators also sought orders concerning their liabilities in respect of certain leases; and orders concerning the confidentiality of certain exhibits to affidavits. Pursuant to s 77.05 of the Supreme Court (General Civil Procedure) Rules 2015 ('Rules'), the proceeding was referred to me for hearing and determination.

3 The Deed Administrators had objected to the application insofar as the remuneration was concerned, but not otherwise.

4 Following negotiations between the parties, an agreement was reached, resulting in signed consent minutes being provided to the Court. Those consent minutes dealt with the remuneration to be approved and other matters ('Consent Orders').

5 The proceeding was listed for hearing on 20 May 2021. The defendants were excused from appearing. At the hearing on 20 May 2021, Counsel for the Former Administrators explained that the consent position in relation to remuneration had been recorded so that the Court was aware that these were the orders now sought jointly by the parties, but were in no way intended as a fetter on the Court exercising its jurisdiction under the Corporations Act 2001 (Cth) ('Act') in considering the remuneration application.

6 Having read the materials, including Counsel's submissions and the affidavits relied upon, I indicated that I would make the orders sought, except for those concerning remuneration which would be reserved, as further time was needed for me to come to a concluded view as to the amount of remuneration to be approved. Orders regarding matters excepting remuneration were then made by me on 24 May 2021.

7 Accordingly, these reasons deal solely with the aspects of the application concerning the remuneration of the Former Administrators. With the consent of the defendants, the Former Administrators seek the following orders in respect of their remuneration ('Remuneration Application'):

(a) For the period from 7 May 2020 to 12.35pm on 5 June 2020 ('Appointment Period') in the amount of $199,967.67 ('Appointment Period Remuneration') plus GST of $19,996.77;

(b) For the period from 12.35pm on 5 June 2020 to 30 November 2020 ('Post‑Appointment Period') in the amount of $351,866.43 ('Post-Appointment Period Remuneration') plus GST of $35,186.64;

(c) For the period from 1 December 2020 to 31 July 2021 ('Future Period') in the amount of $54,500 ('Future Period Remuneration') plus GST of $5,400;

(d) The Former Administrators' costs and expenses of the application be paid on an indemnity basis from the assets of the Company and the funds held by the Deed Administrators in their capacity as Deed Administrators of the Company; and

(e) Otherwise, no order as to costs.

8 I note that the amounts now sought by the Former Administrators (except in respect of the Future Period Remuneration) are less than originally sought. The above amounts are those set out in the Consent Orders.

9 The Remuneration Application is supported by the following affidavits of Rachel Burdett, the first plaintiff:

(a) the affidavit sworn 22 December 2020 ('First Affidavit');

(b) the affidavit sworn 13 April 2021 ('Second Affidavit');[1] and

(c) the affidavit sworn 19 May 2021 ('Third Affidavit').

10 The Former Administrators also rely on the written outline of their Counsel, dated 19 May 2021. Counsel's submissions are comprehensive and I have found them helpful in reaching my decision.

11 An affidavit filed by Mr Cremin sworn 12 March 2021 was, by agreement, withdrawn.[2]

12 For the reasons which follow, I will grant the Remuneration Application and make orders accordingly.

13 The Company was incorporated on 2 March 1978. Since 8 March 2018, Toby Darvall has been the sole director and shareholder of the Company.[3]

14 The Company operated a retail business selling homewares, including handmade clothing, jewellery, furniture and gifts ('Business') and traded under the name "Ishka". The Company imported many of its goods from overseas, including from Nepal, Malaysia and India.[4]

(a) Operated approximately 60 retail stores and warehouses across Victoria, New South Wales, South Australia, Queensland, Tasmania and the Australian Capital Territory (together, the 'Premises')';[5] and

(b) Employed 142 employees in the Business on a full or part time basis and 347 employees in the Business on a casual basis.[6]

16 The Company's annual turnover for the financial year ending 30 June 2019 was approximately $54,739,000.[7]

17 The Former Administrators were appointed as joint and several administrators of the Company on 20 February 2020 ('Appointment Date'), on the resolution of the Company's sole director.[8] The Former Administrators are partners of the insolvency firm Cor Cordis.

18 The first meeting of the Company's creditors was held on 3 March 2020.[9] On the application of the Former Administrators, the period for the convening of the second meeting of creditors was extended for three months to 20 June 2020 by order of this Court made on 18 March 2020.[10]

19 On 8 May 2020, the Former Administrators sent a circular to creditors advising that the second creditors' meeting would be held on 15 May 2020 ('Creditors' Circular'). As well as the report of the Former Administrators, the papers enclosed with the Creditors' Circular included a copy of a proposed deed of company arrangement ('Proposed DOCA') and a remuneration approval report ('First Remuneration Report').[11] The Proposed DOCA contemplated that the Former Administrators would become the deed administrators.[12]

20 At the second creditors' meeting on 15 May 2020 ('Second Creditors' Meeting'), resolutions were passed to the effect that:[13]

(a) The Company execute a deed of company arrangement in accordance with the Proposed DOCA;

(b) The Deed Administrators be appointed as deed administrators of the Company;

(c) The Former Administrators' remuneration be approved for the period:

(i) 20 February to 6 May 2020 in the amount of $969,75.50 plus GST ('Approved Amount');

(ii) 7 May 2020 to completion of the administration, calculated in accordance with Cor Cordis' standard rates effective 1 January 2019, capped to $50,000 plus GST ('Approved Cap');

(d) The Former Administrators' internal disbursements be calculated in accordance with the Remuneration Report and approved for payment up to a capped amount of $2,000 plus GST.

21 The Proposed DOCA was instigated and proposed by Sahasrara Pty Ltd ('SPL') and its director and shareholder, Mr Darvall. Under the Proposed DOCA, the Business would be purchased by SPL, continuing employees of the Company would transition to SPL, and SPL would assume the Company's obligations under certain specified leases held by the Company.[14]

22 The arrangements between the parties also contemplated that the Former Administrators, the Company and SPL would enter into a business sale deed. On 5 June 2020, prior to the execution of any deed of company arrangement, those parties executed the business sale deed ('BSD').[15]

23 On 5 June 2020, the Company entered into a deed of company arrangement ('DOCA') and the Deed Administrators were appointed as administrators under the DOCA, instead of the Former Administrators becoming the deed administrators.[16] This brought the administration of the Company to an end and resulted in the termination of the Former Administrators' appointment.[17]

24 After that date, the Company ceased trading the Business and it was thereafter operated by SPL. Ms Burdett deposes that the Deed Administrators never traded the Business, they had no familiarity with it or need to familiarise themselves with the trading activities other than in certain confined respects.[18]

25 I have summarised the legal principles in respect of remuneration applications and the approach to be taken by the Court on numerous occasions, and most recently in Re WITS Holdings Pty Ltd (in liq).[19] I refer to and adopt the summary I set out in WITS Holdings at paragraphs 32 to 47. That is the approach I have followed here.

Power of the Court to approve remuneration for the Post-Appointment Period

26 I have also recently had cause to consider, also in WITS Holdings, the question of the power of the Court to approve remuneration incurred by administrators during the period after they ceased being administrators of the relevant company. At paragraphs 89 and 90 of that judgment, I stated that:

Considering the provisions of the Act prior to the changes brought about by the ILRA [the Insolvency Law Reform Act 2016 (Cth)], Barker J in Huxtable, in the matter of Timeshare Resort Club Ltd (in liq)[20] held that an administrator was not entitled to remuneration under the Act (the relevant provision at that time being the former s 449E of the Act) for work done before their appointment as administrator or after the termination of the administration.[21] However, his Honour pointed out that an administrator may be entitled to recover remuneration if there is 'an express or implied contract between the administrator ... and the company in respect of such work'.[22] Alternatively, an administrator may be entitled to recover reasonable payment on a quantum meruit basis.[23]

There is also authority for the proposition that the Court can approve remuneration and expenses incurred by an administrator for work conducted by them following the termination of their appointment. In Re PPI Corporation Pty Ltd,[24] Gardiner AsJ referred to Timeshare and then accepted that the evidence in the case before him established that the administrators had been engaged by the liquidators to perform the post-administration work, effectively as their agents.[25] Gardiner AsJ held that the administrators were entitled to remuneration for that work, utilising s 447A of the Act to modify the operation of Part 5.3A of the Act so as to make orders in respect of that remuneration.[26]

27 As noted above, the Deed Administrators originally objected to the Remuneration Application (noting that the amounts now sought are less than previously sought). The question of the Court's power was, at that time, still open between the parties.

28 In the case under consideration the agreement between the parties, as reflected in the Consent Orders, involves the Deed Administrators agreeing to the quantum sought in respect of the Post-Appointment Period. Implicitly, such agreement is an acknowledgment that the Post-Appointment Period Remuneration concerns work approved by the Deed Administrators and conducted to assist with handover tasks for the administration and deed administration of the Company.

29 I will deal separately with the work performed by the Former Administrators during the Post-Appointment Period. Importantly, however, there is evidence before me that after the appointment of the Deed Administrators, the Former Administrators carried out certain tasks at the request of the Deed Administrators along with other tasks to ensure a smooth transition and handover from the administration to the deed administration.[27] The Former Administrators' solicitors prepared a handover note and checklist ('Handover Checklist'), which divided up numerous tasks between the Former Administrators, the Deed Administrators, their respective solicitors, and certain Company officers/employees. This was sent to the Deed Administrators' solicitors and to Mr Cremin.[28] At no time was any objection taken to the Handover Checklist or the tasks to be undertaken by the Former Administrators pursuant to it, and the Former Administrators undertook those tasks and reported to the Deed Administrators when they had been completed.[29]

30 I am satisfied that there was an agreement, either express or implied or a combination thereof, between the Former Administrators and the Deed Administrators in respect of the work performed by the Former Administrators during the Post-Appointment Period. Therefore, the Former Administrators' remuneration for the Post‑Appointment Period falls within the exception referred to in Timeshare as applied in PPI Corporation. Section 90-15(3)(f) of the IPS expressly refers to the Court having power to make orders in relation to remuneration.

31 Accordingly, I am satisfied that, in this instance and in the particular circumstances now before me, that the Court has power to approve the Former Administrators' remuneration for the Post-Appointment Period. It is important to note, however, that I go no further than accepting that the Court has power to make orders in respect of the Former Administrators' remuneration in the circumstances of this case.

32 As the remuneration for the period 20 February 2020 to 6 May 2020 has already been approved by creditors,[30] the Former Administrators seek approval of their remuneration only for the period from 7 May 2020. Since the remuneration incurred after that date exceeds the Approved Cap, the Former Administrators require Court approval for this amount as creditor approval has not been obtained.

33 There is extensive evidence from Ms Burdett as to the work performed by the Former Administrators. I have included in these reasons a very brief summary of this, in order to give a flavour and sense of the work carried out by the Former Administrators. I am satisfied, based on the affidavit evidence, that the work performed by the Former Administrators was complex and extensive, and that sufficient evidence has been adduced for me to be satisfied that it was necessarily and properly performed.

Work performed by the Former Administrators during the Appointment Period

34 At the outset, I note that some of the work referred to here is referrable to the period prior to 7 May 2020. I also note that although the Second Creditors' Meeting was held on 15 May 2020 and there was a resolution passed that the Deed Administrators be the administrators under the DOCA, the administration continued until the DOCA was executed and the Former Administrators remained in office until the DOCA was executed.

35 The tasks performed by the Former Administrators during the Appointment Period (including prior to 7 May 2020) included:

(a) Calling and holding the first and second meetings of creditors;

(b) Extending the convening period;

(c) Assessing the Company's estimated assets and liabilities;

(d) Reviewing the historical features of the Business to trade it on;

(e) Trading on the Business;

(f) Dealing with employees and suppliers, and with stock issues;

(g) Dealing with creditors, including the secured creditor;

(h) Dealing with some 60 leases and license agreements in respect of the Premises from which the Company operated the Business;

(i) Adapting to the changed retail environment due to the COVID-19 pandemic, including lockdowns, transition to online shopping, and JobKeeper;

(j) Dealing with the assignment of leases for the Premises;

(k) Administering and monitoring the Company's bank account;

(l) Monitoring the Company's day to day trading operations;

(m) Dealing with active legal issues, which included at least five separate disputes;

(n) Preparing reports to creditors;

(o) Negotiating the DOCA and the BSD; and

(p) Performing the usual statutory and administrative tasks required of external administrators.

Work performed during the Post-Appointment Period

36 Ms Burdett deposes that the work performed by the Former Administrators during the Post-Appointment period was necessary for the proper and orderly completion of the administration and/or was undertaken by them on behalf of the Deed Administrators.[31]

37 The tasks performed by the Former Administrators during the Post-Appointment Period included:

(a) Assisting with payroll and staff-related tasks;

(b) Resolving returns and customer-related tasks;

(c) Resolving outstanding leases and landlord disputes and payments;

(d) Resolution of trade on costs from the Administration Period;

(e) Resolving active legal issues from the Administration Period;

(f) Finalisation of the BSD and the Former Administrators' liabilities;

(g) Dealing with creditor enquiries;

(h) Completion of statutory and administrative tasks relating to the Administration Period;

(i) Extensive dealings with the Deed Administrators in respect of the Handover Checklist and the tasks to be performed in accordance with it; and

(j) Preparation of this remuneration application and report.

38 In her first affidavit, Ms Burdett deposed that the work to be performed during the Future Period would be for tasks including:

(a) Sale and customer-related work;

(b) Leases and landlord management work;

(c) Trade-on costs management work;

(d) Management of active legal issues;

(e) Creditors and stakeholders management work;

(f) Statutory and administration tasks; and

(g) The remuneration application.

39 In her third affidavit, Ms Burdett deposes that in addition to these items, the work performed during the Future Period included preparing and collating information requested by the Deed Administrators.[32]

40 The Former Administrators have calculated their remuneration on a time-cost basis.[33] Ms Burdett deposes that this was the most appropriate methodology and I am satisfied that this is the case,[34] in the context of this administration and particularly where the Former Administrators were trading on the Business for some months. The hourly rates for the Former Administrators and their staff are in evidence[35] and I am satisfied that they are within the range typically charged by insolvency practitioners.

41 An updated remuneration report to accompany this application ('Second Remuneration Report') has been prepared by the Former Administrators in accordance with the ARITA Code of Professional Practice for Insolvency Practitioners.[36] It identifies the number of hours spent by each staff member, the relevant hourly rate, the gross value of work undertaken (exclusive of GST). It records the time spent on specific tasks during the relevant period and includes narrations of the work performed.

42 As mentioned above, the amount of remuneration originally sought by the Former Administrators has been revised in light of the agreement reached between them and the Deed Administrators. The Second Remuneration Report was prepared on the basis of the amounts originally sought, so both sets of amounts will be referred to.

43 When the originating motion was filed, the Former Administrators sought approval for their remuneration for the Appointment Period in the amount of $281,564 (GST exclusive) less the $50,000 already approved by creditors (ie the Approved Cap), that is, $231,564. The Second Remuneration Report shows the work done and time recording in the amount of $281,564.

44 Ms Burdett deposes as to the assumptions made when estimating the Approved Cap at the time of preparing the Creditors' Circular. These were:[37]

(a) A large number of creditors and staff would be lodging proofs of debts and proxies to attend the meeting, and these documents would be lodged independently by the creditors rather than Mr Darvall and/or his advisors;

(b) All but remedial administration creditors and suppliers had submitted invoices and payment of same had been arranged throughout the course of the administration;

(c) The online sales backlog would have largely been dispatched and resolved by senior management of the Business and would not require further resources and continuous follow up;

(d) The Former Administrators would have limited involvement in respect of any customer refund issues and enquiries of same;

(e) There would be limited (if any) involvement in respect of the lease assignments to be progressed under the DOCA;

(f) SPL would not require assistance transitioning suppliers or maintaining the Former Administrators' accounts following the conclusion of the administration;

(g) Store closures would largely have been progressed and completed;

(h) The Former Administrators would only be providing minimal assistance with transitional matters;

(i) The terms of the final DOCA and BSD would have largely been agreed and settled; and

(j) The Former Administrators would be appointed as deed administrators under the DOCA.

45 Ms Burdett deposes that she considered these assumptions to be reasonable at the time the Creditors' Circular was prepared, however many of them were ultimately incorrect.[38]

46 Ms Burdett has explained why the remuneration for the Appointment Period has exceeded the Approved Cap. In summary, Ms Burdett deposes that this is due to a number of factors, including the following:[39]

(a) Many of the assumptions listed above proved to be incorrect for reasons beyond the Former Administrators' control;

(b) It was not until just prior to the Second Creditors Meeting and after the Creditors' Circular was sent to creditors, that SPL proposed appointing the Deed Administrators rather than the Former Administrators. As a result, there was a significant amount of work required to be done that would not have been required if the Former Administrators were the deed administrators under the DOCA. This included ensuring an orderly transition of the external administration to the Deed Administrators;

(c) The backlog of sales that built up during the administration, the volume of refund requests and dealing with management to ensure that it these were dealt with in a timely manner;

(d) Dealing with the assignment of leases from the Company to SPL;

(e) A number of unexpected trading issues arising after the Second Creditors Meeting;

(f) Dealing with a number of unanticipated active legal issues;

(g) The preparation of the BSD and DOCA as complex, and a significant number of drafts were exchanged between the parties prior to them being agreed to by all parties as being in order for execution. The drafting of these documents was more complicated than anticipated due to, amongst other things, the involvement of an additional party (the Deed Administrators) who were required to review the documents; and

(h) Dealing with much higher than anticipated creditor enquiries due to, amongst other things, the administration transitioning from the Former Administrators to the Deed Administrators.

47 I am satisfied with the explanation given by Ms Burdett as to the reasons why the remuneration for the Appointment Period exceeded the Approved Cap. In fact, I find it hardly surprising that this the case, given the manner in which events unfolded, which have been thoroughly detailed in the First Affidavit.

48 The amount of remuneration for the Appointment Period as agreed between the Former Administrators and the Deed Administrators is $199,967.67 plus GST, which I have defined as the Appointment Period Remuneration. The Appointment Period Remuneration is a reduction of $31,595.83 from the amount originally sought.[40]

49 When the originating motion was filed, the Former Administrators sought approval for their remuneration for the Post-Appointment Period in the amount of $390,610 (GST exclusive). The Second Remuneration Report shows the work done and time recording in this.

50 The amount of remuneration for the Post-Appointment Period, as agreed between the Former Administrators and the Deed Administrators, is $351,866.43 plus GST, which I have defined as the Post-Appointment Period Remuneration. The Post‑Appointment Period Remuneration is a reduction of $38,610 from the amount originally sought.[41]

51 Ms Burdett deposes that during the period from 1 December 2020 to 14 May 2021, which is most of the period I have defined as the Future Period, the Former Administrators have spent a total of 303.10 hours and incurred an amount of $168,912 (excluding GST) in remuneration.[42] She breaks this up into the categories referred to in paragraphs 38 and 39 above, and notes that of this amount, some $139,191 of it was referrable to the Remuneration Application, which included responding to the objections filed, the affidavit filed (now withdrawn) by Mr Cremin, and preparing and finalising the Second Affidavit (much of which was a response to Mr Cr[43]in's affidavit).43

52 The amount of remuneration for the Future Period, as agreed between the Former Administrators and the Deed Administrators, is to be capped at $54,500 plus GST for the Future Period, which I have defined as the Future Period Remuneration.

53 While this is an increase of $20,000 on the amount originally sought, it is an amount which is heavily discounted from the costs already incurred in the period 1 December 2020 to 14 May 2021, as set out above.

Statutory provisions and their application to the Remuneration Application

54 Section 60-12 of the Insolvency Practice Schedule (being Schedule 2 to the Act) ('IPS') sets out the matters which the Court must have regard to when determining whether the remuneration sought is reasonable. I will address each of these matters in turn.

The extent to which the work performed or likely to be performed was or is likely to be necessary and properly performed

55 I have reviewed the evidence and the Second Remuneration Report and I am satisfied that the work performed during the Appointment Period and the Post-Appointment Period was necessary and properly performed.

56 Ms Burdett has clearly and painstakingly set out a great deal of detail about the work performed and the reasons why it was necessary for it to be performed. I accept her evidence.

57 I am also satisfied that the work performed during the Future Period and to be performed during the remainder of it was and is necessary and properly performed.

The period during which the work was or is likely to be performed

58 It is tolerably clear from the evidence that although the administration period only lasted some 5 months, the work necessary to be performed during that time and after 5 June 2020 (when the administration ceased) was extensive and intensive.

The quality of the work performed or likely to be performed

59 It is also tolerably clear from the evidence that the quality of the work performed and that is likely to be performed was of a high quality. The Former Administrators successfully traded on the Business for some 5 months, dealt with the upheaval caused by the COVID-19 pandemic and its drastic effect on the retail environment, successfully negotiated and completed the DOCA and the BSA, dealt with some 60 leases and licenses in respect of the Premises used by the Business, and carried out all the other tasks expected of external administrators.

The complexity or otherwise of the work performed or likely to be performed

60 Similarly, it is evident that the work performed in respect of this administration was of a highly complex nature. The matters I referred to in the previous paragraph are clearly complex. In addition, there were several other matters of higher complexity than usual, such as dealing with customers of the Business, the various legal disputes referred to earlier, hundreds of employees, JobKeeper, and the appointment of the Deed Administrators. I have no doubt at all that the work performed by the Former Administrators was complex in nature.

The extent to which the administrator was, or is likely to be, required to deal with extraordinary issues

61 The Former Administrators were also required, for the same reasons, to deal with extraordinary issues.

The extent to which the administrator was or is likely to be required to accept a higher level of risk or responsibility than is usually the case

62 Trading on a business while in administration usually involves the external administrator to take on a higher level of risk or responsibility than is otherwise the case. This administration is no exception to that. Here, in trading on the Business for some 5 months, the Former Administrators were responsible for its ongoing trading and its dealings with suppliers, customers, employees and landlords. In doing so, they were required to accept a higher level of risk, including the risk of significant personal liabilities.

The value and nature of any property dealt with or likely to be dealt with

63 It is evident from the nature of the Business and its turnover for the full financial year prior to the commencement of the administration that the Business was a large one.

The number, attributes and conduct of the creditors

64 The Former Administrators were required to deal with numerous creditors of the Company, including employees, a secured creditor, landlords, and customers who had returned goods.

If the remuneration is worked out wholly or partly on a time-cost basis, the time properly taken or likely to be properly taken in performing the work

65 I have reviewed the Second Remuneration Report and the description of work performed and to be performed given in the First and Third Affidavits. These contain sufficient detail for me to be satisfied as to the amounts claimed. In particular, I am satisfied that:

(a) There was an appropriate degree of delegation of the work performed, in that matters which were of a more routine nature were performed by more junior employees and charged at lower hourly rates;

(b) The tasks described are reasonable and necessary to have been performed, and the time taken to perform them (and therefore the amounts charged for them) were reasonable; and

(c) There is no evidence of duplication, or unnecessary duplication, of work.

Whether the administrator was or is likely to be required to deal with one or more controllers or managing controllers

66 The Former Administrators were required to deal with the Deed Administrators, and given the arrangements between them, including the division of work as reflected in the Handover Checklist, that liaison was extensive and prolonged.

67 I am also satisfied that the remuneration application was complex and required the Former Administrators to perform the work that they have in that regard.

68 Given that I have already expressed satisfaction with the work performed and the amounts charged for it, it follows that I consider it appropriate to approve the amounts sought in respect of the Appointment Period Remuneration and the Post‑Appointment Period Remuneration. I also consider the amount sought for the Future Period Remuneration to be reasonable.

69 Accordingly, I will make orders approving the Former Administrators Remuneration as sought, as set out in paragraph 7 above.

[1] The Former Administrators do not rely on paragraphs 118, 119, 127, 129, 139-149 (including the heading above paragraph 149), 155, 156, and 174-265 of the Second Affidavit. The orders which I made on 24 May 2021 included an order that these paragraphs not be read into evidence.

[2] The orders made on 24 May 2021 also reflect this.

[16] First Affidavit, [6], [27], [31].

[19] [2021] VSC 179 ('WITS Holdings').

[20] [2010] FCA 673 ('Timeshare').

[21] Timeshare, [73] citing Skafcorp Ltd v Jarol Pty Ltd [2002] NSWSC 1183 [16] - [17] (Austin J) ('Skafcorp').

[22] Timeshare, [74]; see also Skafcorp, [16].

[23] Timeshare, [74]; see also Skafcorp, [16].

[24] [2014] VSC 366 ('PPI Corporation').

[30] See paragraph 20(c)(i) above.

[36] First Affidavit, [42]-[43]; Exhibit RB-11.