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

Remuneration

Section 60-5 of the Insolvency Practice Schedule entitles the liquidators to receive remuneration for necessary work properly performed in relation to the liquidation of the Company in accordance with remuneration determinations made pursuant to s 60-10.
Section 60-10 of the Insolvency Practice Schedule provides that remuneration determinations may be made by resolution of the creditors, by a committee of inspection (if any) or, in the absence of a resolution of creditors or any committee of inspection, by the Court. The liquidators apply to the Court for a determination in the present case because all creditors of the Company have been paid and there is no committee of inspection.
The principles that apply to a determination by the Court are well established. Section 60-12 of the Insolvency Practice Schedule requires the Court to have regard to whether the remuneration is reasonable, taking into account any or all of the matters set out in s 60-12(a)-(l) and any other relevant matters. The following principles emerge from the judgment of the Court of Appeal in Sanderson as liquidator of Sakr Nominees Pty Ltd v (in liq) v Sakr (2017) 93 NSWLR 459; [2017] NSWCA 38 at [54]-[60]: 1. the onus is on the liquidator to establish the reasonableness of the remuneration claimed and the function of the Court is to determine the remuneration by considering the material provided and bringing an independent mind to bear on the relevant issues; 2. the proportionality in terms of the work done compared with the size of the property the subject of the insolvent administration or the benefit to be obtained from the work is an important consideration in determining reasonableness of the remuneration claimed. The work done must be proportionate to the difficulty and importance of the task in the context of which it needed to be performed; 3. evidence of the percentage that the remuneration constitutes of assets realised provides a measure of objective testing of the reasonableness of the remuneration claimed and will identify those cases in which there ought to be a real concern about the proportionality of the remuneration claimed; 4. however, the mere fact that work performed does not lead to augmentation of the funds available for distribution (such as work done to comply with the liquidator's statutory obligations) does not mean that the liquidator is not entitled to be remunerated for the work; 5. even where work is undertaken in an unsuccessful attempt to recover assets, there is no reason why the liquidator should not recover remuneration for that work provided that it was reasonable to carry out the work and the amount charged for it is reasonable; and 6. both time-based remuneration and ad valorem remuneration may be appropriate measures of remuneration, depending on the circumstances of the particular liquidation.
As Black J observed in In the matter of Fearndale Holdings Pty Ltd (admin appted) (recs & mgrs. apptd) [2020] NSWSC 901 at [38] (citations omitted): "It is not the Court's role, as constituted by a judge in an application of this kind, to undertake a line by line review of the relevant narratives in an insolvency practitioner's billing record, but the Court will generally review the relevant narratives in a broad way in order to satisfy itself that they support the other evidence led in respect of the claimed remuneration…"
As I have referred to above, the amount of remuneration now sought is $24,603.50 for the period from 22 May 2019 to 28 January 2022.
The remuneration is calculated on a time-charging basis at hourly rates of between $615 and $675 per hour for the Liquidator, between $590 and $660 per hour for the next senior member of the Liquidator's staff who worked on the matter, between $390 and $540 per hour for staff at the supervisor and manager levels, between $265 and $415 per hour for staff at the graduate, intermediate and senior levels below managers, and between $110 and $260 per hour for cadets and administrative staff. In my opinion, the hourly rates are within the range of rates commonly charged in the insolvency industry, albeit towards the upper end of that range.
The Liquidator has put before the Court his firm's time sheets recording the work done during the period from 22 May 2019 to 23 November 2021, the amount charged for each item of work and the level of seniority of the person who attended to the work. The Liquidator has also provided an analysis allocating the work during the period from 22 May 2019 to 23 November 2021 to the categories of administration, creditors, dividend and investigations.
Those records reveal that the work done during that period essentially falls into four categories: 1. reporting to creditors and adjudicating proofs of debt in mid-2019 and making further enquiries of potential creditors in mid-2020; 2. searching for the Company's register of members and compiling membership details from a review of ASIC records in about mid-2021; 3. liaising with the Liquidator's solicitors concerning these proceedings from time to time during the period from November 2019; and 4. attending to tasks of an ongoing, repetitive nature, such as statutory lodgements, reconciliation of bank statements, paying and recording disbursements, internal meetings and discussions and file maintenance.
I am satisfied based on my review of the time records that the work within the first three categories referred to at [26] above was necessary and was properly performed by persons of an appropriate level of seniority within the Liquidator's staff and that the time spent and remuneration claimed in respect of that work is reasonable. However, those three categories of work were carried out over a very long time period, which has increased the work required in the fourth category.
The fourth category of work accounts for $10,284.50, being approximately half of the remuneration claimed in respect of the period from 22 May 2019 to 23 November 2021. Whether all of this work was necessary depends on whether it was necessary for the administration to continue for a further two years after the Liquidator had recovered the dividend in the winding up of the related entity and obtained advice from his solicitor concerning the distribution of the surplus in November 2019 (having already sold the Company's business and assets in January 2017).
The Liquidator gave evidence attributing the continuation of the administration during this two-year period to: 1. the time taken for the inquiries made of the two potential creditors referred to at [14] above, which the Liquidator says commenced in November 2019 but were not completed until some after May 2020. The Liquidator says these inquiries were complicated by the Liquidator's staff working from home during part of that period as a result of the COVID-19 pandemic and difficulty in contacting creditors due to office closures; 2. the need to seek information from the Company's external accountant and review ASIC records in order to compile shareholding details for the Company, which resulted in the originating process and supporting evidence for these proceedings taking a number of months to draft; and 3. reduced working hours implemented for the Liquidator's staff during the period from April 2020 to December 2021 in order to avoid redundancies during the COVID-19 pandemic.
In relation to (1) above, the time records do not corroborate the Liquidator's evidence that the time taken to make these enquiries with potential creditors prolonged the administration. The time records contain three entries relating to these enquiries. On 25 March 2020, Mr Zac Thomas (a junior administrative assistant) spent less than one hour undertaking work described as: "Calling potential creditors regarding amounts entered in the directors ROCAP. Creditors will not be providing POD's [sic]. Creditors have been emailed asking to confirm this". On 26 May 2020, Ms Emma Mos (a principal) spent less than one hour undertaking work described as: "review draft memo re crs claims, liaise w ZT re status". On 24 June 2020, Mr Arun Thakur (a cadet) spent less than one hour undertaking work described as: "Communicated with ZT re file note of creditor communication and assisted in locating response through emails re creditors corro". I infer from these time entries that the enquiries that the Liquidator deemed necessary were made and answered by the potential creditors in less than one hour on 25 March 2020, subject to email confirmation which was received at some time thereafter. All that remained to be done was ensure that the creditors' confirmation was appropriately documented. For reasons that are not explained by the evidence, that did not occur until June 2020 but took less than two hours in total.
In relation to (2) above, the time records reveal that, although there were some internal discussions between the Liquidator's staff in July 2020 "re shareholder issue", the work required to compile shareholding details did not commence until mid-July 2021 when Ms Mos reviewed the Form 551 that would be required for the purpose of applying for special leave to distribute the surplus and liaised with the Liquidator about the need to follow up the Company's accountant for the register, which the Liquidator subsequently discovered did not exist or could not be found. By the end of July 2021, Ms Mos was searching for board minutes and other Company records concerning the issues of shares. By August 2021, Ms Mos was reviewing ASIC records in relation to share issues in order to populate the Form 551. The work appears to have been completed by the end of August or early September 2021. Thus, the whole of this work was completed within less than two months. The evidence does not explain why the work did not commence in about November 2019 when the Liquidator received his solicitor's advice concerning the distribution of the surplus. It must have been obvious at that time that the contributions would need to be identified.
In relation to (3) above, there is no evidence of any reason why the work referred to in (1) and (2) could not have been undertaken and these proceedings commenced (and determined) by April 2020. The time records indicate that during the period after the solicitor's advice was received in November 2019 until the implementation of reduced working hours in April 2020, there were some discussions about the solicitor's advice in the weeks after it was received and about the need to confirm that the Company had no creditors. The necessary inquiries were made of creditors in March 2020, as I have referred to above. There do not appear to have been any steps taken towards the preparation of the necessary application to the Court concerning the Liquidator's remuneration and the distribution of the surplus.
Whilst the Court is in no position to cavil with the Liquidator's evidence that it was necessary for his firm to reduce working hours in order to avoid staff redundancies, it does not necessarily follow that it was reasonable to implement the reduced working hours in such a way that it resulted in staff being required to continue routine tasks on an administration over a prolonged period because the work required to finalise the administration was not being done. There is no evidence as to the reasonableness of that course and its effect on the duration and cost of this administration. The evidence does not establish that the work that was required to finalise this administration in the period after the receipt of the solicitor's advice in November 2019 was complex or time consuming. Had the work been attended to efficiently after November 2019, it is likely to have been completed or substantially completed before the COVID-19 pandemic and associated lockdowns affected the work of the Liquidator and his staff.
After referring to the reduced working hours implemented by his firm during the pandemic, the Liquidator gave the following evidence in his affidavit affirmed on 2 March 2022: "I have reviewed the WIP spreadsheets … and say that although there may have been some delays, the work conducted by me and my staff was necessary and reasonable. The only WIP entries I believe may have been avoided if the matter had progress more quickly were some of the BAS reports and ASIC lodgements. I note that the time entries for the BAS reports and ASIC lodgements were conducted by my more junior staff and the cost incurred was minimal."
Based on my review of the time records referred to above, the delays resulted in ongoing costs associated not only with BAS reports and ASIC lodgements but also work such as reconciliation of bank statements, paying and recording disbursements, internal meetings and discussions and file maintenance. All of these items of work are relatively small in terms of time taken and remuneration charged and I accept that they were undertaken by staff with an appropriate level of seniority. However, small charges add up and it is my opinion that the delays that resulted in those tasks needing to be undertaken over a period of more than two years after November 2019 were unreasonable.
The remuneration of $24,603.50 claimed for the period from 22 May 2019 to 28 January 2022 represents approximately nine per cent of the $227,185.94 proceeds of the sale of the Company's business and assets in January 2017. I am unable to determine the extent to which that percentage would be reduced by taking into account the amount of the company's liabilities paid by the purchaser of the Company's business or the amount of the dividend recovered in the winding up of the Company's related entity. There is no evidence of the amounts of those liabilities or that dividend.
In my opinion, there would be a lack of proportionality in approving remuneration equivalent to approximately an additional nine per cent of known recoveries over and above the remuneration approved by creditors, where approximately half of that additional remuneration ($10,284.50) is attributable to the unreasonable prolongation of the administration for two years after the Liquidator was in a position to take steps towards distributing a modest surplus.
There is no evidence of the work done during the period from 23 November 2021 to 28 January 2022. The Liquidator has simply deposed that he has incurred costs of $3,935 during that period.
For all of those reasons, the Liquidator has failed to discharge his onus of establishing the reasonableness of the whole amount of the remuneration claimed for the period from 5 May 2019 to 28 January 2022. Doing the best I can on the basis of the available evidence, and taking into account that the Liquidator does not seek any amount of remuneration for work that remains to be done to finalise the winding up, I have determined to approve the remuneration claimed less one half of the fourth category of work referred to at [26(4)] and [27] above (a reduction of $5,142) and the amount of $3,935 referred to immediately above in respect of which the Liquidator adduced no evidence.
Accordingly, there will be an order that the Liquidator is entitled to remuneration in respect of the period from 5 May 2019 to 28 January 2022 in the amount of $15,526.50 (plus GST).
The Liquidator does not seek any order of the Court approving his disbursements referred to at [17]-[18] above.

Application for special leave to distribute surplus

I now turn to the Liquidator's application under s 488(2) of the Corporations Act for special leave to distribute the surplus to the contributories.
The purpose of requiring the Court's special leave to distribute the surplus is largely concerned with ensuring that there is, in fact, a surplus to be distributed, that proper steps have been taken to ensure that those who might have a claim on it have been notified, and that the correct relativities between contributories have been observed. The liquidator is expected to demonstrate these matters to assist the Court in determining whether it is appropriate in all the circumstances for the distribution to be made: see, for example, Re John L Norris Holdings Pty Ltd (in liq) [2013] NSWSC 2005 at [3] (Brereton J, as his Honour then was); Re Hawden Property Group Pty ltd (in liq) (2018) 125 ACSR 355; [2018] NSWSC 481 (Gleeson JA) at [57].
On the basis of the evidence already summarised above, I am satisfied that all creditors of the Company have been paid in full and that after: 1. the Liquidator's remuneration of $15,526.50 (plus GST of $1,552.65); and 2. the Liquidator's disbursements and a fund retained for estimated future disbursements referred to at [17]-[18] above (including legal costs of these proceedings) totalling $15,069.35 (which I assume includes GST), are deducted from the surplus funds of $43,952.99 presently held by the Liquidator, there is a remaining surplus of $11,804.49 available for distribution to contributories. I am satisfied that the Liquidator's interrogation of ASIC records has identified the contributories and their shareholdings in the Company as set out in the Form 551 attached to the originating process. The Liquidator published the advertisement required by rule 7.9 of the Supreme Court (Corporations) Rules 1999 (NSW) more than 14 days prior to the hearing on 7 March 2022 and received no communications from any person in response to that advertisement. No contributory or other person appeared and sought to be heard at that hearing.
Accordingly, there will be an order granting special leave to the Liquidator to distribute that surplus to the contributories in the proportions specified in the Form 551.

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