The second plaintiffs in these proceedings, Ms Jennifer Nettleton and Mr Rahul Goyal, are the joint and several liquidators of ACN 076 313 034 Pty Limited, formerly known as Mudgee Dolomite & Lime Pty Limited (the Company). The first plaintiff, Mr Robert Murdoch, and the second defendant, Mr Brian Murdoch, are the directors and equal shareholders in the Company.
The Company carried on a quarrying and milling business at two quarry sites in New South Wales.
The Company was ordered to be wound up on the just and equitable ground following a concurrent hearing before Black J of derivative proceedings commenced by Mr Brian Murdoch in the name of the Company against Mr Robert Murdoch and others, derivative proceedings commenced by Robert Murdoch in the name of the Company against Mr Brian Murdoch and others, oppression proceedings brought by Mr Brian Murdoch and proceedings brought by Mr Robert Murdoch for the winding up of the Company on the just and equitable ground. [1] Orders winding up the Company and appointing the liquidators were made on 24 November 2020.
An appeal and cross-appeal against the judgment of Black J has been heard and judgment is reserved. The liquidators defended the appeal and prosecuted a cross-appeal on behalf of the Company. Neither the appeal nor the cross-appeal challenged the orders winding up the Company and appointing the liquidators.
As at the date of the liquidators' appointment, the Company's books and records indicated that the total value of the Company's assets was approximately $18.62 million. The proceeds of assets that have subsequently been sold by the liquidators together with a significant amount of cash at bank that is yet to be distributed in the winding up indicate that the value of the Company's assets is in the order of about $22 million.
The liquidators have carried out a complex sale process for the Company's assets. The major assets of the quarrying and milling business have now been sold. The complexity of the sale process and the disputes that arose between Mr Brian Murdoch and Mr Robert Murdoch during the sale process are described in a judgment of Black J published on 20 October 2021. [2] The liquidators traded the business on a "business as usual" basis until completion of the sale.
All known creditors of the Company have been paid in full. Accordingly, there have been no meetings of creditors and a committee of inspection has not been formed.
In prayer 1 of an interlocutory process filed on 24 December 2021, the liquidators sought an order pursuant to s 60-10(1)(c) of the Insolvency Practice Schedule (Corporations) in Schedule 2 the Corporations Act 2001 (Cth) that they are entitled to receive remuneration in the sum of $2,312,340 (excluding GST) for their work performed in the liquidation of the Company during the period from 5 April 2021 to 10 October 2021. I will refer to this as the second remuneration period as orders were made by Ward CJ in Eq on 19 July 2021 that the liquidators were entitled to receive remuneration of $1,356,245 (excluding GST) for their work performed in the period up to 4 April 2021 (the first remuneration period). [3]
In prayer 2 of the interlocutory process filed on 24 December 2021, the liquidators also sought leave pursuant to s 60-20(3)(b) of the Insolvency Practice Schedule to derive a profit or advantage from the external administration of the Company to the extent that internal disbursements in the amount of $4,296.90 (excluding GST) incurred in the liquidation of the Company for the second remuneration period caused them to directly or indirectly derive a profit or advantage in breach of s 60-20(1).
Prayer 3 of the interlocutory process sought an order pursuant to s 90-15 of the Insolvency Practice Schedule that any further remuneration of the liquidators for the period from 11 October 2021 to the finalisation of the liquidation may be approved by unanimous resolution of the shareholders of the Company.
Prayers 4 and 5 of the interlocutory process sought orders dispensing with the requirement under the Supreme Court (Corporations) Rules 1999 (NSW) to notify certain parties and the Australian Securities and Investments Commission (ASIC) of the applications in the interlocutory process.
Prayer 6 sought an order that the liquidators' costs of the interlocutory process be costs in the liquidation of the Company.
Prayer 7 sought an order that the orders be entered forthwith.
At the hearing of the interlocutory process on 31 January 2022, the liquidators did not press prayer 3 of the interlocutory process. At the conclusion of the hearing, I made orders in terms of prayers 1, 2 and 4 to 7 of the interlocutory process on the basis that I would publish my reasons for that decision at a later date. These are my reasons.
[2]
Dispensing with notification
The liquidators tendered evidence establishing that Mr Robert Murdoch and Mr Brian Murdoch had been served with the interlocutory process together with the supporting affidavit of Mr Goyal and that neither of them wished to be appear at the hearing of the interlocutory application or to make submissions in opposition to the orders sought by the liquidators.
In those circumstances, and given that all creditors of the Company have been paid in full, I was satisfied that it was appropriate to make an order dispensing with the notice requirements under r 9.2 of the Supreme Court (Corporations) Rules.
Rule 2.8 of the Supreme Court (Corporations) Rules required the liquidators to notify ASIC of their application under s 90-15 of the Insolvency Practice Schedule for an order in terms of prayer 3 of the interlocutory process. In circumstances where the liquidators did not press prayer 3 at the hearing, any such notice would have been redundant and I was satisfied that it was appropriate to make an order dispensing with compliance with r 2.8 to the extent necessary to do so.
[3]
Remuneration
As counsel for the liquidators submitted, s 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. As identified in the helpful written submissions prepared by counsel for the liquidators, 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.
Counsel for the liquidators also referred to the approach taken by the Court in reviewing material provided by a liquidator in support of an application for a remuneration determination, as described by Black J in In the matter of Fearndale Holdings Pty Ltd (admin appted) (recs & mgrs. apptd) [2020] NSWSC 901 at [38]:
"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, and I have taken that course here: Re Idylic Solutions Pty Ltd as trustee for Super Save Superannuation Fund [2016] NSWSC 1292 at [58]; Re Banksia Securities Limited (in liq) (recs and mgrs apptd) [2018] NSWSC 229 ; Re Aberdeen All Farm Pty Ltd (in liq) above."
The liquidators relied principally on an affidavit of Mr Goyal affirmed on 24 December 2021 in support of the application. The liquidators also read affidavits of Mr Goyal affirmed on 26 March 2021, 18 June 2021, 3 September 2021, 5 October 2021 and 10 October 2021.
In his affidavit affirmed on 24 December 2021, Mr Goyal has provided a detailed description of the work under undertaken by the liquidators during the second remuneration period in relation to six categories of work:
1. "Assets";
2. "Creditors and shareholders";
3. "Trading";
4. "Administration, risk mitigation and legal issues";
5. "Statutory compliance"; and
6. "Internal disbursements".
Features of the Company's business and assets that rendered certain aspects of the work necessary for the purpose of this liquidation are also addressed in Mr Goyal's 24 December 2021 affidavit and in parts of his earlier affidavits to which he refers in that most recent affidavit.
The remuneration claimed is calculated on the basis of time charging. In his affidavits affirmed on 18 June 2021 and 24 December 2021, Mr Goyal deposed that the liquidators delegate work to their staff with the level of seniority appropriate to the delegated task and that the liquidators and their staff record their time in six minute units on a daily basis. A schedule summarising the work undertaken during the second remuneration period, prepared on the basis of those daily time records, was exhibited to Mr Goyal's 24 December 2021 affidavit (the WIP schedule).
The hourly rates recorded in the WIP schedule are $725 for partners and executive directors (including the liquidators), $675 for directors, $525 for managers, $475 for senior executive analysts, $425 for executive analysts, $375 for senior business analysts, $325 for business analysts and client accounting administrators and $150 for administration and client accounting support staff. In my opinion, these rates are within a range of rates commonly charged in the insolvency industry.
I have reviewed Mr Goyal's affidavits and the WIP schedule in relation to each of the six categories of work undertaken during the second remuneration period.
In relation to the first category - "Assets" - Mr Goyal deposed that the liquidators and their staff have undertaken work during the second remuneration period to identify, preserve and realise the Company's assets, including plant and equipment, motor vehicles, real property described by Mr Goyal as "non-core properties", debtors, related party loan accounts and cash at bank. More significantly, the liquidators and their staff have undertaken extensive work to prepare the Company's business for sale, conduct a sale campaign and execute contracts for sale. As I have already noted earlier in these reasons, the sale process was complex. Mr Goyal deposed that the work undertaken by the liquidators and their staff included establishing and maintaining a virtual data room for potential purchasers, arranging site inspections for potential purchasers and making presentations and attending meetings with those interested parties. Work was also undertaken to resolve a legal issue concerning an access road that arose during the sale and to structure the sale in a manner that ensured that the access issue did not impact the sale process. The liquidators and their staff engaged in extensive negotiations with short‑listed bidders for the business. Completion of the sale contract occurred in November 2021, just after the end of the second remuneration period. The sale of the business realised $9 million.
The total remuneration claimed by the liquidators for the "Assets" category of work during the second remuneration period is $997,200 (excluding GST). The WIP schedule reveals that this charge reflects 1,746 hours of work, the majority of which was performed by two directors, a senior executive analyst and a business analyst within the liquidators' firm. The liquidators themselves performed approximately 10 per cent of this work (on a time basis).
In relation to the second category - "Creditors and shareholders" - the liquidators claim total remuneration of $84,005 (excluding GST) for the preparation and issuing of notices to creditors and shareholders, updates on the status of the liquidation and general correspondence during the second remuneration period. Updates have been issued approximately monthly. The updates have described the Company's ongoing trading operations and results and provided information about the sale of the Company's business and assets and the appeal proceedings referred to at [4] above. The WIP schedule reveals that the total remuneration of $84,005 reflects 145 hours of work, of which approximately two thirds was undertaken by a senior executive analyst and a director with most of the remaining work undertaken by the liquidators themselves.
Mr Goyal deposed that the third category - "Trading" - is remuneration for work undertaken by the liquidators and their staff in relation to the continued trading of the Company's business on a business as usual basis while the liquidators worked towards achieving a sale of the business. This work included maintaining a presence at the Company's Buckaroo quarry site, with two of the liquidators' staff being permanently based there to assist the Company's management during the trading period. The Court was informed that the two staff members based at the quarry were Mr Nick Griffin and Mr Tully Cameron. Mr Griffin is a mining consultant and a director of the liquidators' firm. Mr Cameron is a senior executive analyst. Counsel for the liquidators informed the Court that the liquidators considered that it was important for Mr Griffin and Mr Cameron to be actively and closely involved in the management of the Company's business whilst it was traded by the liquidators, in circumstances where the business had previously been under the management of one shareholder and director of the Company and there had been a complex and bitter dispute between him and the other shareholder and director which had ultimately resulted in the Company being wound up on the just and equitable ground.
According to Mr Goyal, the work undertaken by Mr Griffin, Mr Cameron and other members of the liquidators' staff included reviewing management reporting information and preparing regular financial reports, attending to employee and safety matters and liaising with the NSW Resources Regulator in relation to various blasts on site, safety issues, COVID-19 protocols and other matters.
The total remuneration claimed by the liquidators for the "Trading" category of work during the second remuneration period is $912,355 (excluding GST). The WIP schedule reveals that this reflects total work of 1,636 hours by the liquidators and their staff, approximately two thirds of which was undertaken by Mr Griffin and Mr Tully. Most of the remaining work was done by Mr Goyal himself and by a senior business analyst and two business analysts.
The total remuneration claimed for the fourth category - "Administration, risk mitigation and legal issues" - is $228,535 (excluding GST). Mr Goyal deposed that this work included arranging insurance cover for the Company and amending that cover as assets have been sold, bank account administration and administration tasks relating to the virtual data room for the sale of the Company's business, client accounting and document finalisation. The work in this category also included the liquidators' application to the Court for orders pursuant to s 90-15 of the Insolvency Practice Schedule that the liquidators were justified in entering into the contract for the sale of the Company's business (being the application that was the subject of Black J's judgment referred to at [6] above) and the defence of the appeal and prosecution of the cross-appeal referred to at [4] above.
The WIP schedule reveals that the claimed remuneration of $228,535 reflects 468 hours of work undertaken by the liquidators and their staff in this fourth category. The majority of that work was undertaken by one manager, one senior executive analyst, one senior business analyst and one business analyst. The liquidators each undertook just under 50 hours of this work. Work was also undertaken by various administration staff.
The liquidators claimed remuneration of $90,245 (excluding GST) for 257 hours of work undertaken in the fifth category - "Statutory compliance". According to Mr Goyal, the work included liaising with the Company's accountants in relation to the preparation of financial statements and tax returns, liaising with the Australian Taxation Office, recording keeping and reporting to ASIC. The WIP schedule reveals that this work was undertaken by personnel at a range of levels of seniority within the liquidators' firm, with very little work being done above the manager level of seniority and significant amounts of work being undertaken by client accounting administrators, administration staff and client accounting support staff.
Mr Goyal deposed that the sixth category - "Internal disbursements" in the sum of $4,296.90 (excluding GST) - relates to the hosting of the virtual data room for the sale of the Company's business. The liquidators' firm has charged data room fees based on the size of the data room (megabits) in line with the firm's disbursement policy. The liquidators' firm pays fees to the data provider under a separate master service agreement. The amount charged to the Company by the liquidators' firm may include a minor profit element. That is why the liquidators seek the order in prayer 2 of the interlocutory process in relation to these disbursements.
In paragraph 43 of his affidavit affirmed on 24 December 2021, Mr Goyal deposed that, given the nature and volume of the work involved in the liquidation of the Company which the liquidators consider was necessary for the proper conduct of the liquidation, the liquidators believe that the total remuneration of $2,312,340 claimed in respect of the second remuneration period (excluding GST) represents a fair and reasonable amount of remuneration for that period. Mr Goyal deposed that the liquidators are also satisfied that the disbursements in the sixth category referred to immediately above were necessary and properly incurred and are reasonable in the circumstances.
The liquidators' present estimate of their total remuneration for the liquidation of the Company is $4,463,410 (including the $2,312,340 claimed in respect of the second remuneration period). I note that this estimated total remuneration represents approximately 20 per cent of the estimated value of the total assets referred to at [5] above. The estimated total remuneration has increased from earlier estimates for several reasons, including the appeal and cross-appeal referred to at [4] above and the fact that it has taken longer to complete the sale of the Company's business than the liquidators initially anticipated and the liquidators undertook work to continue trading the business in the period leading up to completion of that sale.
The amount of remuneration claimed in respect of the second remuneration period is significant. Nevertheless, on the basis of all of the evidence referred to above, I was satisfied that the work for which remuneration was claimed in the interlocutory process filed on 24 December 2021 was necessary work that was properly performed in relation to the liquidation of the Company during the second remuneration period and that the amount of remuneration claimed was reasonable in all the circumstances.
As counsel for the liquidators submitted, Mr Goyal's evidence demonstrates that the Company operates a complex business and that the liquidators and their staff have had to undertake a wide range of time-intensive tasks to continue trading the business throughout the liquidation and to negotiate a sale of the business that has realised some $9 million for the Company's shareholders. For the reasons already referred to at [31] above, much of that work required the presence of the liquidators' staff at the site of the Company's business operations. Although that increased the cost of the liquidators' work in the "Trading" category, the business was successfully traded, with all creditors continuing to be paid in full. The remuneration claimed for the "Assets" category of work reflects the complexity of the business being sold and the complexity of the sale process itself, including the disputes that arose between the shareholders, leading to the October 2021 proceedings before Black J referred to at [6] above.
All of the remuneration claimed has been calculated on the basis of hourly rates that are consistent with rates charged in the insolvency industry for work that appears to have been done by personnel with the appropriate level of seniority based on my broad review of the WIP schedule. Neither the remuneration claimed in the present application nor the total estimated remuneration is disproportionate to the value realised for the Company's business through that sale process and the value of the Company's other assets that have been or are in the process of being realised.
Finally, I note that the shareholders, who have been kept informed about the liquidators' remuneration charges and claims throughout the liquidation and who were served with the interlocutory process and supporting affidavit of Mr Goyal in relation to the second remuneration period, did not oppose the liquidators' application.
For those reasons, I made orders on 31 January 2022 in terms of prayers 1 and 2 of the interlocutory application filed on 24 December 2021.
[4]
Costs of this application
In circumstances where all creditors of the Company have been paid and there is no committee of inspection, the liquidators were required to apply to the court for a remuneration determination: see Insolvency Practice Schedule, ss 60-5 and 60-10. It is therefore entirely appropriate that the costs of that application be costs in the liquidation of the Company.
[5]
Conclusion and orders
For all of the foregoing reasons, I made orders on 31 January 2022 in terms of prayers 1, 2 and 4 to 7 of the interlocutory process filed on 24 December 2021 and referred to at [8]-[9] and [11]-[13] above.
[6]
Endnotes
In the matter of Mudgee Dolomite & Lime Pty Ltd [2020] NSWSC 1510.
In the matter of Mudgee Dolomite & Lime Pty Ltd (in liq) [2021] NSWSC 1350.
In the matter of Mudgee Dolomite & Lime Pty Ltd [2021] NSWSC 984.
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Decision last updated: 02 February 2022