- Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr

Application of the relevant principles

I turn now to the factors specified in s 473(10) of the Corporations Act, the importance of which was emphasised by the Court of Appeal in Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr above. Those factors include whether a liquidator's claimed remuneration is reasonable, taking into account all or any of specified matters, including, first, the extent to which the work performed or likely to be performed by the liquidator was reasonably necessary; the period during which the work was, or is likely to be, performed; and the quality and complexity of the work.
I will address the question of whether the work done was reasonably necessary in dealing with the quantum of the costs claimed by Mr Kerr below. As to the period in which the work was performed, Mr Balafoutis submits that the length and cost of the liquidation was necessitated by Ms Morphett's and Mr Harvey's actions, including the foreshadowed application to terminate the winding up. Mr Balafoutis submits that a termination of the winding up would have been in the interests of the Company's creditors, where unsecured creditors would only have received a fraction of their claims if Mr Kerr had realised the Company's assets. I accept that proposition, although it obviously depends on whether the evidence led by Ms Morphett will ultimately be sufficient to support a termination of the winding up. Mr Balafoutis also points out that Mr Kerr traded the dental practice for about eight months, from November 2015 until July 2016, although the day to day dental practice was in Mr Harvey's hands and Mr Harvey thereafter ceased to remit funds to the Company.
Mr Balafoutis also points to the delays by Ms Morphett in bringing and progressing the application to terminate the winding up, including Ms Morphett's delay in bringing any application to terminate the winding up for ten months, until September 2016, and the further delay, after the application was filed, resulting from extensions of time to file evidence sought by Ms Morphett and the filing of several affidavits by Ms Morphett, which Mr Kerr submits contained omissions and misstatements to which he responded by further evidence. Mr Kerr relies on that delay as having substantially increased the costs of the winding up and there is little doubt that it will have done so. Mr Balafoutis also submits that Mr Kerr was required to respond to Ms Morphett's application to terminate the winding up where the affidavit evidence led in support of it was, he submits, incomplete and misstated material facts. I do not express any view as to that matter, which may need to be determined in the substantive application to terminate the winding up. I accept that these matters were outside Mr Kerr's control, once he chose to defer taking steps to realise the Company's assets pending the application to terminate the winding up, and the evidence indicates that Mr Kerr's solicitor regularly followed up as to the lack of progress in that application. I am satisfied that the period during which that work was performed was extended, partly by Mr Kerr's decision to await the outcome of the application to terminate the winding up, but largely by reason of Ms Morphett's delays in the commencement and conduct of that application. I am also satisfied that there has been additional complexity in the matter by reason of Ms Morphett's and Mr Harvey's conduct.
The Court is also to have regard to whether a liquidator was or is likely to be required to deal with extraordinary issues, or accept a higher level of risk or responsibility than is usually the case; the value and nature of any property dealt with, or likely to be dealt with, by the liquidator; whether the liquidator was, or is likely to be, required to deal with other insolvency practitioners; and the number, attributes and behaviour, or the likely number, attributes and behaviour, of the company's creditors. It seems to me that Mr Kerr has not been required to deal with extraordinary issues. Mr Balafoutis submits that Mr Kerr was placed in a position of greater than usual risk because there is a real likelihood that he would not be able to recover his remuneration (once approved) and disbursements, where he has incurred legal costs which exceed the amount of cash held by the Company. I interpolate that further funds may become available as a result of a payment of rent to be made by Mr Harvey as a condition of adjourning the application to terminate the winding up. Mr Kerr also points to the fact that the Company is unlikely to have assets to realise if Westpac enforces its security over the Company's two properties. I accept that there is a degree of risk to Mr Kerr, as would commonly be the case in a court-ordered winding up where a company has limited assets or those assets are secured to a lender. I do not consider that the level of risk or responsibility involved in the management of the Company's affairs was such as to warrant the charging of higher fees by Mr Kerr than would ordinarily be charged by a court-appointed liquidator, and there is no suggestion that Mr Kerr's hourly rates are unreasonably high, although there are issues as to the number of staff involved in this liquidation and the amount of time spent which I will address below.
I have had regard to the value and nature of the property that was dealt with by Mr Kerr, which are relevant to the question of proportionality of the costs claimed. Mr Kerr has not realised any property of the Company while the application to terminate the winding up has been pending, and will not deal with any such property if that application is successful. The only property of value that may be available to be dealt with by the Company is the Cessnock and Bar Point properties, with an estimated value of about $995,000, and cash of about $135,000, plus the rent to be paid by Mr Harvey. As I noted above, Mr Kerr's assessment is that the debt owed by TOHC is unlikely to be recoverable, and Mr Kerr has valued the boats and equipment owned by the Company as having no value. This matter does not assist Mr Kerr, since substantial costs have been incurred in respect of a company which, on his assessment, has only two property assets, both of which may ultimately not be available to the Company because of Westpac's security, and limited funds. The amount of remuneration claimed is also a substantial proportion of the value of those properties, as assessed by Mr Kerr, if they are ultimately available to the Company. Mr Kerr was not required to deal with other insolvency practitioners.
Section 473(10)(k) of the Corporations Act requires that, if remuneration is ascertained, in whole or in part, on a time basis, the Court is also to have regard to the time properly taken, or likely to be properly taken, by the liquidator in performing the work and whether the total remuneration payable to the liquidator is capped. Mr Balafoutis submits that time-based charging is appropriate in the relevant circumstances and I would, in principle, accept that submission. Mr Balafoutis also relies on the observation of Bathurst CJ in Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr above at [59]-[61], where the Chief Justice observed, inter alia, that: "The liquidator submitted that once it was established that the work was necessary and was performed in a reasonable and timely fashion, the value of the work involved was an irrelevant consideration. Put in that bald fashion, I am unable to agree. The judge in considering the amount to be awarded was entitled to take into account all the matters in s 473(10) including the value of the work in the sense referred to at [55] above. That being said, the fact that the work was required and there was no evidence that the rates charged or the hours spent were excessive is a highly relevant factor." Mr Balafoutis places particular weight on the Chief Justice's observation in the last sentence quoted above, which must of course be read subject to the Chief Justice's observation (which I quoted above) that the liquidator bears the onus of establishing that the amount of remuneration he or she seeks is fair and reasonable. Mr Balafoutis also emphasises, and I accept, that the mere fact that the work performed by a liquidator does not lead to augmentation of the funds available for distribution does not mean that the liquidator is not entitled to be remunerated for it, subject to the significant qualification that it was reasonable to carry out the work and the amount charged is reasonable: Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) above at [46].
I recognise that Mr Kerr indicated that he would seek to claim remuneration on a time basis in his first report to creditors and that a majority by number of creditors, being several creditors other than Mr Harvey, appear to have approved Mr Kerr's remuneration and I have given weight to that matter. Mr Balafoutis also points to Mr Kerr's affidavit evidence as to the hourly rates for the staff engaged in the liquidation, their qualifications and the role they have undertaken and as to the time recording system maintained by his firm (Kerr 20.3.17 [48]) and to his expressed view that a time based charging method is appropriate, having regard to the issues encountered with the Company and the actions of Ms Morphett and Mr Harvey (Kerr 20.3.17 [57]). Mr Balafoutis also points to Mr Kerr's evidence that he has reviewed the time sheets of staff working on the matter and made reductions in the amount of remuneration sought (which, I interpolate, are substantial in absolute terms although less substantial as a proportion of the remuneration claimed) and that he has delegated much of the work undertaken to less senior staff. Evidence of this kind, as to the process for time-charging, is plainly relevant in an application of this kind but provides little assistance in identifying the particular matters on which time was spent and whether that time was reasonably spent on those matters.
On the other hand, Mr Newton, who as I noted above appears for Ms Morphett and Mr Harvey, draws attention to the fact that the liquidator's time records disclose that some 24 staff have spent in excess of 940 hours working on the Company's liquidation and submits that: "[T]he liquidator and numerous staff spent an extremely large amount of time on the liquidation of a small private company with only a few assets and only a small amount of creditors." Mr Newton also points to the size of the amount claimed by comparison with other claims for remuneration in more complex matters, and the fact that the amount claimed is almost double the amount of remuneration to 31 May 2017 of $209,685.50 excluding GST for which Mr Kerr had sought approval in his first report to creditors dated 17 May 2016. Mr Newton also submits that it is almost impossible to assess whether the hours spent by the liquidator and his staff were reasonably necessary or to assess the quality of the work undertaken from the time records on which Mr Kerr relies.
The amount of remuneration claimed by Mr Kerr is large, for a liquidation of a proprietary company of a relatively small scale, notwithstanding the period for which the liquidation has extended. It seems to me that the evidence and time recording information on which Mr Kerr relies identify the time that was spent, and to some extent the work that was done, but provide limited assistance in an assessment of its necessity or proportionality. At the conclusion of the hearing, I requested Mr Kerr to provide a summary document identifying categories of work divided by person, including identifying or estimating remuneration referable to the conduct of the proceedings. The document provided by Mr Kerr in response to that invitation emphasises the difficulties with the application as it presently stands. Remuneration is claimed in respect of work done by four partners, a principal, three persons designated "manager 1", an assistant manager, three persons designated "senior analyst 1", seven juniors, two treasury staff, an accountant, a person designated "analyst 2", three further senior analysts and two personal assistants, although I recognise that the substantial bulk of the work on the liquidation was done by Mr Kerr, one "manager 1", an assistant manager, an "analyst 2" and one of the juniors and lesser amounts of time were recorded by other persons. It seems to me that, notwithstanding Mr Kerr's evidence, further explanation is required as to how the liquidation required 140 hours of his time; 365 hours of that manager 1's time; 152 hours of that assistant manager's time; 208 hours of the analyst's time; and the use of numerous other staff members recording time in lesser amounts.
I recognise that the amount of remuneration claimed is categorised within Mr Kerr's evidence and the time sheets in broad categories that suggest the nature of the work done, such that nearly $30,000 is attributable to the category "assets", $83,366 to the category "creditors", a modest amount of $3,842 to the category "employees", an amount of $84,419 to the category "trade on", $149,002 to the category "investigation" and $57,826 to the category "administration". It appears, from a further document provided by Mr Kerr at the Court's request, that remuneration claims of $41,571 are attributable to the application to terminate the winding up and $20,528 to time in respect of the remuneration application. However, the evidence does not seem to me to explain the need for a relatively large number of staff to be involved in the liquidation, or the particular steps which were taken within the general categories of work that generated the substantial remuneration claims within those categories, particularly in respect of "creditors", "trade on", "investigation" and "administration". The explanation of that matter might well require an assessment of the link between the time spent and the 33 items of work to which I referred in paragraph 17 above, or at least the more significant of those items, but Mr Kerr's evidence does not expressly address that link. The work in progress schedules on which Mr Kerr relies may provide assistance in that respect, but only if the time spent can be linked to the items of work to which it relates from the relevant narratives. It seems to me that Mr Kerr would need to address that matter by evidence of the kind to which I referred above, which would likely need to address the need for the particular work done in its factual context, and address the need for the number of staff involved in it and why that work took the time claimed for it.
I also recognise that Australian Securities and Investments Commission ("ASIC") was given notice of this application and has not intervened in it. Mr Balafoutis submits that the Court may properly infer, from ASIC's position, that nothing in the material provided to it has caused it to form the view that any aspect of the liquidator's claim for remuneration requires regulatory intervention or warrants the making of submissions before the Court: Re Idylic Solutions Pty Ltd as trustee for Super Save Superannuation Fund [2016] NSWSC 1292; (2016) 115 ACSR 581 at [6]; Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) above at [23]. In this case, that inference does not seem to me to be of sufficient weight to warrant the approval of the entire amount of the remuneration presently claimed, and the evidence does not provide a basis for determining any lesser amount.
I have no doubt that Mr Kerr is entitled to remuneration in a substantial amount. However, the evidence as it stands does not leave me with any state of satisfaction that the amount claimed is justifiable in full or allow any rational basis for me to determine another amount that would be justifiable. I do not consider that I should dismiss the application for remuneration without allowing Mr Kerr the opportunity to seek leave to reopen and lead further evidence, if he wishes to do so, addressing more directly the matters to which I have referred above, such as the time costs that were attributable to the major tasks undertaken (as distinct from broad categories of work done); the number and level of staff allocated to those major tasks and the number of staff involved in the matter generally; and any matters that increased the costs incurred in particular tasks beyond what he would ordinarily expect for a company of this kind.

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Judgment (8 paragraphs)

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