Application for approval of provisional liquidators' remuneration
By Interlocutory Process filed on 25 May 2018, Messrs Norman and Algeri as the former joint and several provisional liquidators of Plutus Payroll Australia Pty Ltd (in liq) and several associated companies, who are now also the liquidators of those companies and another company, apply for relief including an order under s 473(2) of the Corporations Act 2001 (Cth) approving their remuneration as joint and several provisional liquidators of the relevant companies in the sum of $809,499.35 inclusive of GST, for the period 9 June 2017 to 9 October 2017.
Section 473(2) of the Corporations Act was repealed by the Insolvency Law Reform Act 2016 (Cth) but the provisional liquidators rely on s 1581(1) of the Corporations Act which provides that, despite the repeal of that section, the former legislation continues to apply in relation to the remuneration of an external administrator of a company who was appointed before the commencement date. The commencement date of the Insolvency Law Reform Act was, relevantly, 1 September 2017, and the provisional liquidators had here been appointed prior to that date, on 2 July 2017, and that transitional provision and s 473(2) of the Corporations Act continue to apply.
It will immediately be noted that the amount for remuneration claimed is substantial by any standard. However, as will emerge below, the provisional liquidators' claim for remuneration is brought in respect of some ten or so companies, and the provisional liquidation of those companies has given rise to complex issues, and the claim reflects a substantial amount of work done during the four month period of the provisional liquidation from 9 June 2017 to 9 October 2017. It should also be noted that the companies have minimal assets, and that the claim for remuneration will ultimately be met by the Deputy Commissioner of Taxation, under an indemnity agreement in favour of the provisional liquidators, subject to that the Court's approval of that agreement, which is the subject of a separate application.
The application is supported by several affidavits of Mr Norman, one of the liquidators. Mr Norman's affidavits dated 2 July 2017 and 28 July 2017 each annex reports, which were provided to the Court pursuant to orders that it had previously made, in respect of the work done in the provisional liquidation. Mr Norman's further affidavit dated 12 September 2017 deals with the progress of the provisional liquidators' investigations into the companies, including matters such as their employees, their assets and their solvency, as to which Mr Norman formed the view that the companies were insolvent.
Mr Norman's further affidavit dated 18 July 2018 deals with the basis of his application for remuneration, for the period to which I have referred above. Mr Norman's evidence is that, perhaps not surprisingly for a substantial provisional liquidation, there was a relatively large team involved in the matter. However, Mr Norman indicates that the large part of the work done has been involved by a smaller group of people, which he describes as the "core team". Mr Norman's affidavit indicates that, in the particular circumstances, a significant amount of work was done by Mr Norman personally and by more senior staff, including two directors of his firm and a partner in his forensic accounting team, and by a single analyst and three graduate employees. The allocation of work in that respect is weighted towards more senior staff, in the way that would not ordinarily be seen in a provisional liquidation, or indeed in a liquidation generally. However there is force in Mr Norman's evidence that this was not an ordinary provisional liquidation, both in respect of the nature of the issues that arose, and the complexity and the sensitivities of the matter, including the fact that the provisional liquidation was taking place where criminal proceedings had already been commenced against a number of individuals associated with the companies, and many of the relevant documents were already in the possession of law enforcement bodies. Mr Norman's evidence is that he endeavoured to structure that team in the most cost effective manner, using less senior and cheaper staff where possible, although it must be observed that there nonetheless remains a predominant allocation of work to more senior staff. It does not seem to me that anything in the nature of the matter suggests that that allocation was imprudent, in the particular circumstances.
Mr Norman's evidence outlines the steps taken following the appointment of the provisional liquidators, which included steps that would ordinarily be taken to draw that appointment to the attention of regulators, creditors and other affected parties, but also a range of activities which reflected the involvement of law enforcement bodies in the matter, and the need to liaise with creditors generally, including the Australian Taxation Office as a major creditor of the relevant companies.
Mr Norman also refers to complexities associated with the provisional liquidation, including difficulties in obtaining access to the companies' books and records, where those appear to have been both incomplete in some respects, and in the possession of law enforcement bodies to the extent they existed, and difficulties in contacting some of the directors of the provisional liquidators, and obtaining information from them in respect of the companies' affairs. Mr Norman also sets out steps that were taken in dealing with a number of legal matters affecting the companies, including a subpoena issued by several third parties, and the existence of proceedings commenced by the company or companies against the Australian Taxation Office in the Federal Court of Australia. Mr Norman refers to investigations which were undertaken, including interviews of persons associated with the companies, in which Mr Norman personally was involved given the sensitivity of the relevant matters.
Mr Norman in turn sets out the basis of the provisional liquidators' claim for remuneration, which has been organised by reference to the categories typically adopted by provisional liquidators and other external administrators, reflecting the Australian Restructuring Insolvency & Turnaround Association's ("ARITA") categories of assets, investigations, creditors, employees and other matters. The evidence led includes a detailed breakdown, by time and by work category, of the work done in those categories across the relevant companies. Mr Norman expresses the view that the work performed by the provisional liquidators and their team, including the length of time spent performing tasks, was reasonably necessary; notes the nature of that work, including work done by reason of the allegations made against persons associated with the companies; and expresses the view that work performed was allocated to staff at the appropriate level and with appropriate experience and that all work was conducted in a timely and accurate manner. No doubt, Mr Norman's views as to those matters are not conclusive, but that evidence is nonetheless relevant in an application of this kind. Mr Norman also refers to the manner in which time was recorded, which is consistent with that which would ordinarily be adopted by external administrators, and indeed many professional firms, recording work done by task and the time spent on it.
Mr Norman indicates that his practice was himself to review relevant time entries and narrations, consider the reasonableness of time recorded, and consider also whether the task recorded had been undertaken by staff with an appropriate level of seniority. Mr Norman indicates certain categories of work for which remuneration is not sought, including, appropriately, travelling time where Mr Norman and some of his staff are based in the Australian Capital Territory, but have been conducting aspects of this work in New South Wales where the companies were situated. Mr Norman also, appropriately, has not sought to charge for specified administrative work.
Mr Norman expresses the view that the rates and amounts charged are reasonable, having regard to the experience of relevant staff members and rates charged by comparable firms. There is no reason to doubt his evidence having regard to the rates that are in evidence and the Court's experience in claims of this nature, and it must be borne in mind that this application relates to a provisional liquidation at the highest end of complexity.
By a further affidavit dated 29 May 2018, Mr Norman gives evidence that the largest creditors and contributories with major shareholdings in the companies have been given notice of the application. Importantly, the Australian Taxation Office is one of those creditors and, where it stands to bear the cost of the remuneration pursuant to its indemnity, it has not raised any objection to the remuneration claimed. Nor has any other creditor or contributory appeared to contest the amount of remuneration claimed.
By a further affidavit dated 1 June 2018, Mr Norman elaborates on the amount of work which has been undertaken in respect of investigations, and points to the complexity and unusual character of the matters which were the subject of investigations. My attention has also been drawn to a document, tendered with a claim for a suppression order, which identifies a significant number of views formed by the provisional liquidators, which are likely to guide further investigations which may be undertaken by them in their capacity as liquidators. It is not necessary to refer to those views further, other than to note that extensive investigations would have been needed to form them, in respect of a number of matters and a number of persons.
I have the benefit of detailed submissions made by Mr Hynes, who appears for the provisional liquidators in the application. Those submissions refer to the nature of the companies' activities, which were broadly as payroll service providers, which conducted a business of remitting, or in the event partly remitting, deductions of payroll tax to the Australian Taxation Office. It is less the character of that business than the issues which have arisen in respect of the adequacy of remission of those amounts, and how those amounts may have otherwise been disbursed, that have given rise to the complexities in the provisional liquidation. Mr Hynes' submissions also outline, by reference to Mr Norman's evidence, the circumstances of the provisional liquidators' appointment.
Mr Hynes refers to the principles applicable to the determination of remuneration, including referring to the factors specified in s 473(10) of the Corporations Act, as it formally stood, in determining whether remuneration claimed by a provisional liquidator was reasonable. Those factors include, inter alia, whether the work performed was reasonably necessary; the period over which it was performed, in this case several months; the quality and complexity of the work, which I have here noted was at the highest level of complexity for a provisional liquidation; whether the liquidator was required to deal with extraordinary issues, or accept a higher level of responsibility than is usually the case, a matter which is satisfied here given the involvement of law enforcement bodies and the allegation of serious wrongdoing against the companies' officers and directors. Relevant factors will also include the value or nature of the property dealt with, but that is less relevant in a provisional liquidation, particularly in this case where the companies held little property at the point of the provisional liquidators' appointment; and several other matters which are less relevant in this application.
Mr Hynes refers to my summary of the applicable principles in Re Sakr Nominees Pty Ltd [2017] NSWSC 668 at [23]-[25], where I referred to the position as it had developed following the Court of Appeal's decision in Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38; (2017) 118 ACSR 333. I there noted the relevance of proportionality in an application of this kind, and also noted that the majority of decisions had accepted that, at least in some circumstances, time costing may be an appropriate starting point for a calculation of remuneration, although the assessment of proportionality is important in testing the reasonableness of time-based remuneration. I noted that several cases had recognised the significance of the percentage that a liquidator's remuneration bears to the level of asset realisations achieved, but that is less relevant in a provisional liquidation, where the provisional liquidator would not be expected to, and indeed generally does not have power to, realise the company's assets. I also noted the recognition in the case law that work may be necessary, including in order to comply with a liquidator's or provisional liquidator's obligations, although it does not in fact generate any positive return to creditors.
Mr Hynes refers, by reference to the evidence, to the detail of the work undertaken by the provisional liquidator and how their team of staff was structured, and to the manner in which the time had been spent, both by reference to the categories of work done and the persons who had undertaken it. Mr Hynes rightly points out that, as one would expect in an application of this kind, a large part of the work done related to the investigations work stream, given the circumstances in which the provisional liquidators were appointed, although significant amounts also related to dealings with employees and contractors, as to which there have been numerous claims by employees and contractors of the companies, and to the statutory compliance and administration work stream.
Mr Hynes points out that, as I noted above, the process adopted by the provisional liquidators for recording time appears to be both compliant with the ARITA categories, and robust so far as it involves review at partner level of time charges, and detailed reporting of the work that was done.
I noted, in introducing this judgment, that the amount of remuneration claimed is large, by any standard. However, the provisional liquidation is plainly a complex one, involving multiple companies and significant investigative complexities, conducted in a situation where the provisional liquidators carried a significantly higher level of responsibility than would be ordinarily the case. I am satisfied that, in those circumstances, the allocation of work to more senior staff was appropriate, and that the remuneration claimed, although large, is proportionate to the complexities of the matter and the extent of the work done. Accordingly, I make an order in accordance with paragraph 1 of the Short Minutes of Order, initialled by me and placed in the file.
[3]
Approval of indemnity agreement under s 477(2B) of the Corporations Act
The provisional liquidators also seek an order under s 477(2B) of the Corporations Act for approval, nunc pro tunc, of their entry into a deed of indemnity dated on or about 30 August 2017 between the Plaintiff, the Deputy Commissioner of Taxation and them. That deed is annexed to an affidavit of Mr Norman dated 18 April 2018 and provides, relevantly, for the Deputy Commissioner of Taxation for the Commonwealth of Australia to indemnify the provisional liquidators of the companies for their Remuneration (as defined) up to a Remuneration Cap (as defined), which exceeds, by a relatively small margin, the remuneration now claimed and for Expenses (as defined). Clause 8.1 of that deed contemplates that the provisional liquidators would obtain Court approval under s 473(2) of the Corporations Act before any amount was invoiced by them or payable by the Deputy Commissioner of Taxation pursuant to that deed in respect to remuneration. The provisional liquidators have now obtained such approval, pursuant to this judgment. Clause 9 provides for the deed to commence on the day on which it is executed. Although the deed of indemnity itself appears to be undated, Mr Norman's affidavit indicates that it was executed on or around 30 August 2017. In those circumstances, that deed has plainly remained on foot for a period of more than three months, where there is no evidence that it has been terminated by the parties on any of the grounds identified for termination.
In those circumstances, the provisional liquidators correctly recognise that the deed potentially requires the Court's approval under s 477(2B) of the Corporations Act, which relevantly provides that, except with the Court's approval or other approvals not presently relevant, a liquidator of a company must not enter an agreement on a company's behalf, where the term of that agreement may end, or obligations of a party to the agreement may, according to its terms, be discharged by performance, more than three months after the agreement was entered into. In this case, it is plain that at least the obligations of the Deputy Commissioner of Taxation, in respect of indemnification, would be discharged more than three months after the entry into the deed. The restriction under s 477(2B) extends to a provisional liquidator, by reason of s 472(5) of the Corporations Act. The terms of the deed of indemnity also require that an application for that approval be made.
Mr Hynes draws attention to the scope of s 477(2B) of the Act and its purpose within the relevant statutory regime. As Mr Hynes points out, a primary purpose of that section is to ensure that a liquidator does not enter commitments which will unduly delay the completion of the winding up. There is no suggestion that the entry into the deed of indemnity in this case will delay the completion of the provisional liquidation, still less a winding up, where it provides for the provisional liquidators to be funded to undertake their activities, in circumstances that the assets of the companies would otherwise be insufficient to fund that work. Mr Hynes also points to authority that the Court's role in considering an application under s 477(2B) is to determine whether the entry into the relevant agreement is a proper or good-faith exercise of the liquidator's powers and is not ill-advised or improper: see, for example, the authorities to which I referred in Re 7 Steel Distribution Pty Ltd (in liq) (recs and mgrs apptd) [2013] NSWSC 669. Mr Hynes points out, and there is again no controversy about the fact, that the Court may grant such approval nunc pro tunc.
Mr Hynes submits, and I accept, that the interests of the general body of creditors are promoted by entry into the deed of indemnity, where it has the consequence that the provisional liquidators are funded to undertake investigations which may give rise to recoveries for the companies, in circumstances that those investigations would otherwise not be possible.
I am satisfied that the deed of indemnity should properly be approved, nunc pro tunc, under s 477(2B) of the Corporations Act. Accordingly, I make order 2 as set out in the Short Minutes of Order, initialled by me and placed in the file, amended to read as follows:
Approval to the applicants to enter into the deed of indemnity dated on or about 30 August 2017 between the Plaintiff and the Applicants be granted nunc pro tunc pursuant to subsection 477(2B) of the Corporations Act 2001 (Cth), to the extent that any such approval may be required.
[4]
Costs of the application
I note, for completeness, that I am satisfied that both applications brought before me today were properly brought in order to advance the interests of the winding up generally, and I therefore make a further order that the costs of this application comprising the application for remuneration and the application under s 477(2B) of the Corporations Act, be costs in the winding up of the First to Tenth Defendants.
[5]
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Decision last updated: 16 July 2018