Re Electronic Surplus Warehouse Pty Ltd [2010] NSWSC 827

2010/079427 MICHAEL JOHN MORRIS SMITH AS LIQUIDATOR OF ELECTRONIC SURPLUS WAREHOUSE PTY LTD JUDGMENT 1 This application is made by Mr Smith, the sole liquidator in the creditors voluntary winding up of Electronic Surplus Warehouse Pty Ltd. 2 The application relates to Mr Smith's remuneration. He contends that, in the circumstances that now exist, the court should make an order that has the effect of fixing remuneration additional to an initial sum fixed by the committee of inspection. 3 The provision of the Corporations Act 2001 (Cth) concerning the fixing of a liquidator's remuneration in a case such as this is s 499(3): "The remuneration to be paid to the liquidator may be fixed: (a) if there is a committee of inspection--by that committee; or (b) by resolution of the creditors." 4 At a meeting of creditors held on 14 February 2008, it was resolved that four named persons be a committee of inspection in the winding up. The four persons were Mohamed Kassaby, Mahesh Gangwani, Romka Barczynski and Brendan Elias. 5 At a meeting of the committee of inspection held later on the same day (at which three of the four persons were present), a report of the liquidator regarding remuneration was tabled (as required by s 499(6)) and resolution in relation to the liquidator's remuneration was passed. The resolution and the preamble, as recorded in the minutes, were: "The liquidator tabled the Liquidator's Remuneration Report which had earlier been tabled at the creditors' meeting and sent to each creditor with the Notice of Meeting. The Liquidator spoke to the Liquidator's Remuneration Report and agreed to an initial remuneration approval of $20,000 (excluding GST). Approval would be sought from the Committee on future remuneration once the amount of $20,000 was reached. It was moved by: Mahesh Gangwani Proxy in favour of: R&P International Seconded by: Romka Burizynski Proxy in favour of: Pacific Networks

'That the remuneration of the Liquidator be initially fixed to an amount of $20,000 (excluding GST) at rates calculated in accordance with the Remuneration Report and that the Liquidator be authorised to make periodic payments on account of such accruing remuneration.'" 6 The liquidator submitted a further report to the committee of inspection on 31 July 2008 in conjunction with a notice of meeting. It was accompanied by a remuneration report detailing work done by the liquidator from 5 February 2008 to 30 June 2008. This referred to a total of $66,021.45 (including GST and after allowing for the $20,000 approved on 14 February 2008). 7 A meeting of the committee was purportedly held on 6 August 2008. The minutes record the following in relation to remuneration: "The Chairman tabled the Liquidator's Remuneration Report which had been sent attached to his report and the Notice of Meeting. The chairman called for a mover and a seconder for the resolution to approve the Liquidator's Remuneration. It was moved by: Brendan Elias. The Chairman advised that as there was no seconder to the motion, the resolution could not be put." 8 According to the minutes, Mr Elias was the only member of the committee of inspection present. The other persons recorded in the minutes as "present" were the liquidator, a person from the liquidator's firm and a person described as "observer". In terms of s 549(3) of the Corporations Act, therefore, the committee was incapable of acting on that occasion. Section 549(3) says that a committee of inspection "must not act unless a majority of its members are present". A majority of the members of a four-member committee consists of three members. 9 Another purported meeting of the committee took place on 4 December 2009. On that occasion, Mahesh Gangwani was, according to the minutes, "present by telephone" (which I take to indicate participation in accordance with regulation 5.6.13A of the Corporations Regulations 2001 (Cth)) and Romka Barczynski is recorded as "present by proxy" (a course consistent with regulation 5.6.28). By that time, however, the membership of the committee had fallen to three by reason of the resignation of Brendan Elias on 28 October 2009. With two out of the remaining three members present (one by telephone and the other by proxy), the meeting was, in terms of s 549(3), competent to act. 10 The liquidator tabled at the 4 December 2009 meeting a remuneration report. He sought a resolution of the committee fixing his remuneration at $124,743, being $104,321 over and above the initially approved $20,000 after allowing for a small payment received direct from the Department of Education Employment and Workplace Relations in connection with General Employee Entitlements and Redundancy Scheme. 11 The following is recorded in the minutes with respect to remuneration: "Mr Gangwani indicated that he did not want to approve the $104,000 being sought. Mr Gangwani indicated that he wished to consult with other members of the Committee before approving any remuneration of the Liquidator." 12 The meeting was then adjourned to 11 December 2009 and, upon resumption, Mahesh Gangwani said that he had been unable to complete the discussions he wished to have. The meeting was then further adjourned to 14 January 2010. The minutes of the adjourned meeting record the following: "Mr Gangwani advised that he had discussed the quantum of fees to approve for the Liquidator and that the Committee members were only prepared to approve a sum of $10,000 for the Liquidator's remuneration and that such approval would be granted upon the Liquidator providing consent to Mr Gangwani's request to pursue Mr Elias for an insolvent trading claim. … The Chairman advised that as the Committee of Inspection had indicated they were not prepared to approve the remuneration that he was seeking in the sum of $104,743 (excluding GST), he would make an application to the Supreme Court of New South Wales for approval of his remuneration. Mr Gangwani acknowledged the Liquidator's intentions in this regard." 13 No resolution was put or passed with respect to the liquidator's remuneration at the meeting of the committee of inspection that took place on 4 December 2009, 11 December 2009 and 14 January 2010. 14 In the light of this evidence, it is clear that the committee of inspection fixed the liquidator's remuneration at $20,000 (excluding GST) on 14 February 2008 but did so on the footing that the liquidator might seek the committee's approval of further remuneration "once the amount of $20,000 was reached". It is also clear that the liquidator thereafter carried out work which, on his assessment, warranted remuneration substantially in excess of $20,000 and that the committee of inspection, despite the liquidator's requests to fix further remuneration, declined to do so. 15 With the committee of inspection having declined to act further in relation to the matter of the liquidator's remuneration, it is open to a meeting of creditors to act by resolution (see s 499(3)(b)). The liquidator refers in his affidavit to reasons why he considers it futile to seek to obtain a resolution of creditors - basically because virtually all the creditors are disappointed customers who paid deposits or made other part payments before winding up eventuated and who were neither provided with the goods ordered nor favoured with any dividend in the winding up, so that they have no interest and no reason to be interested. The cost of convening a meeting of creditors is estimated by the liquidator at between $3,650 and $5,150 in direct outgoings plus some $4,000 of professional time. 16 It is in these circumstances that the liquidator contends that the court should fix his remuneration. 17 If the statutory machinery for fixing the quantum of the remuneration of a liquidator in a voluntary winding up breaks down and proves unworkable, the court is empowered by s 511(1)(a) to determine the "question" that then arises in the winding up, that is, what is the proper amount of the liquidator's remuneration: Re Walker [2005] NSWSC 557; (2005) 189 FLR 467. Where there has already been a fixing of remuneration by means of that statutory machinery, the court is empowered by s 504(1) to "review the amount of the remuneration". 18 It seems to me that one of these avenues (and perhaps both) should be regarded as available in this case. The liquidator's present application proceeds on that footing. I accept that the court can and should proceed to determine whether the liquidator should have remuneration over and above the initial $20,000 fixed by the committee and, if so, what the amount of the additional remuneration should be. 19 If the case is seen as one of review under s 504(1), the statutory directive in s 504(2) must be observed. If it is regarded as a case under s 511(1)(a), it will be appropriate, even if not compulsory, to observe the statutory directive in s 504(2). 20 The quantification function is best undertaken by a registrar. I therefore make the following orders: 1. Order that Michael John Morris Smith, as liquidator of Electronic Surplus Warehouse Pty Ltd, receive such remuneration, in addition to the remuneration fixed by resolution of the committee of inspection on 14 February 2008, as is reasonable, taking into account the matters specified in s 504(2) of the Corporations Act 2001 (Cth); and that the amount of the remuneration of the said liquidator be reviewed accordingly. 2. Pursuant to Item 7 of the delegation under s 13 of the Civil Procedure Act 2005 made on 9 April 2009, order that there is hereby referred to a registrar the matter of determining the amount of the additional remuneration, if any, receivable by the said liquidator pursuant to Order 1. 21 I also order that the plaintiff's costs of these proceedings to date be paid out of the available assets of the company. **********

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