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

Distribution to creditors

1. By way of background, the Receivers were appointed by this Court as joint and several receivers and managers of all the assets and undertakings of ADF on 1 October 2013 (Kogan 25.6.17 [3]; Ex BFK-5, tab 1) and their appointment was confirmed by further orders made on 15 October 2013 (Kogan 25.6.17 [4]; Ex BFK-5, tab 2) and amended on 3 February 2014 (Kogan 25.6.17 [5]; Ex BFK-5, tab 3).
2. The Receivers now seek an order permitting a final distribution to creditors in the amount of $573,266.34 plus any future dividends (expected to be between $5,000 and $14,000) from the liquidation of Lehman Brothers Australia Limited (in liquidation) ("Lehman Brothers"). This application is necessary since the orders for the Receivers' appointment provided for them to apply to the Court for approval to make any distributions to creditors (Order 4(i)).
3. Mr Kogan's evidence is that, since the previous distribution to creditors in November 2016, the Receivers have made three further realisations totalling $851,626.92, comprising a dividend of $263,726.00 from the receiverships of the two Anglican schools to which ADF had lent the bulk of the money it had borrowed from CBA, GST refunds of $536,178.92 and a dividend of $51,722.00 from the liquidation of Lehman Brothers in which ADF is an admitted creditor (Kogan 25.6.17 [11]-[15]).
4. The proposed final distribution comprises, first, a cash distribution of $573,266.34 (Kogan 7.7.17, Annexure "F"). The Receivers seek the Court's approval to distribute that amount to CBA and APT as the two admitted creditors of ADF as part of a final dividend. Mr Kogan's evidence confirms the identity of the admitted creditors (being CBA and APT), the amounts for which each of their proofs of debt has been admitted and the amount available for distribution (Kogan 18.11.16 [66], Kogan 25.6.17 [22]). That amount would be distributed to the two creditors in proportion to their entitlements, but paid to CBA since APT has given a written direction to the Receivers directing them to pay any dividend due to APT to CBA (Kogan 25.6.17 [18]; Ex BFK-5, tab 8). I am satisfied that that approval may properly be given.
5. The second component of the proposed distribution comprises a future distribution from the liquidation of Lehman Brothers. ADF submitted a proof of debt in the liquidation of Lehman Brothers which was admitted for the amount of $108,640.98 in September 2014; the liquidators of Lehman Brothers have to date paid $51,722.00 in dividends to ADF; and the liquidators of Lehman Brothers have informed the Receivers that ADF is likely to receive further dividends of between $5,000 and $14,000 (Kogan 25.6.17 [14]-[16]). Mr Kogan's evidence is that he expects it could take many months or some years before the liquidators of Lehman Brothers make a final distribution to creditors; and he expects the monthly cost of continuing the ADF receivership would be around $10,500 per month and, in his opinion, it would be impractical and uneconomic to continue the ADF receivership pending receipt of further Lehman Brothers distributions (Kogan 25.6.17 [21]). The Receivers therefore seek an order allowing them to distribute this sole remaining asset of ADF by giving an irrevocable direction to the liquidators of Lehman Brothers (Ex BFK-5, tab 9), by which the Receivers would direct those liquidators to pay any further dividends in the Lehman Brothers liquidation directly to CBA. The liquidators of Lehman Brothers have confirmed they would be prepared to act in accordance with such a direction (Kogan 13.7.2017, Annexure "B"). Ms Beechey submits that there would be no detriment to APT in the Lehman Brothers dividends being paid directly to CBA, since APT has already directed ADF to pay any dividends otherwise payable to APT to CBA, and APT has indicated its consent to the order sought.
6. As Ms Beechey accepted in submissions, it would be possible to reduce the continuing costs of the receivership by, for example, deferring the lodgement of further accounts with the Court until a final dividend was received from Lehman Brothers, although some costs would be incurred in respect of the Receivers' continuing statutory obligations. However, it seems to me that no useful purpose would be served by the Receivers remaining in office, potentially for a considerable time, pending the receipt of a further dividend which would require little or no further action on their part, where the benefit of that dividend can be transferred to creditors in the manner proposed. I am satisfied that this order should also be made.

The Receivers' accounts

1. The Receivers have had their accounts passed on four previous occasions (Kogan 18.11.16 [76]-[79]; Ex BFK-4, tabs 14 and 15; Kogan 25.6.17 [9]; Ex BFK-5, tab 4) and the Receivers now seek an order that the Court pass their six-monthly accounts in respect of the period from 1 October 2016 to 30 March 2017 and their final accounts in respect of the period 1 April 2017 to 7 July 2017. This application is necessary, or at least desirable, since the orders appointing the Receivers required them to file accounts at six-monthly intervals (Order 4(l)) and this order provides a basis for the court to review those accounts. Mr Kogan's evidence is that the Receivers' accounts are a true and accurate record of the accounts of the ADF receivership for the period (Kogan 25.6.17 [27]) and there is no reason to doubt that evidence. I am satisfied that the order sought should be made.

Remuneration and expenses

1. The orders appointing the Receivers provided that they are entitled to reasonable remuneration and reimbursement or exoneration of reasonable expenses, to be fixed by the Court (Order 4(k)). The Receivers now seek orders fixing their remuneration and expenses in respect of the period 1 October 2016 to 10 July 2017 (the date of the hearing of this application) in the sum of $152,735.55 and $318,727.83 respectively (both inclusive of GST).
2. Ms Beechey rightly accepts that the Receivers bear the onus of establishing that the remuneration claimed is fair and reasonable, including that the work was properly performed in the due course of administration and that the amount claimed is a fair and reasonable reward for it: Sanderson (as Liquidator of Sakr Nominees Pty Ltd (in liq)) v Sakr [2017] NSWCA 38; (2017) 118 ACSR 333 at [54]. As Ms Beechey recognises, the factors listed in ss 425(8) and 473(10) of the Corporations Act 2001 (Cth) regarding privately appointed receivers' remuneration and liquidators' remuneration respectively are relevant by analogy to the assessment of the reasonableness of a Court-appointed receiver's claim to remuneration: Templeton v Australian Securities and Investments Commission [2015] FCAFC 137; (2015) 108 ACSR 545 at [23]; Re Banksia Securities Ltd (in liq) (recs and mgrs. apptd) [2017] NSWSC 540 at [42]. Ms Beechey also recognises the significance of proportionality in such an assessment and that several of the factors in s 473(10) have that concept as their unifying theme: Sanderson (as Liquidator of Sakr Nominees Pty Ltd (in liq)) v Sakr above at [55]. Ms Beechey rightly points out that the fact that work performed by an insolvency practitioner does not lead to an increase in the funds available for distribution does not necessarily mean that he or she is not entitled to be remunerated for it, for example, where work is done to comply with statutory obligations, and that the complexity of the work done is also a relevant factor: Templeton v Australian Securities and Investments Commission above at [52]; Sanderson (as Liquidator of Sakr Nominees Pty Ltd (in liq)) v Sakr above at [57]. Ms Beechey submits, and I accept, that time-based remuneration can provide a starting point for the Receivers' claim for remuneration, which can then be assessed in light of the other relevant factors: Sanderson (as Liquidator of Sakr Nominees Pty Ltd (in liq)) v Sakr above at [60]; Re Clout (in his capacity as liquidator of Mainz Developments Pty Ltd) (in liq) [2016] NSWSC 1146; (2016) 115 ACSR 459 at [134].
3. Ms Beechey submits, and I accept, that this receivership involved complex issues, including in relation to the corporate and governance structure of ADF, the status of ADF's loans to entities associated with the Anglican Diocese of Bathurst and the tax affairs of ADF (Kogan 18.11.16 [14]). The receivership has also brought in a substantial amount, $26.54 million, in realisations. Mr Kogan's evidence is that a large part of the Receivers' work in the period for which approval for remuneration is now sought has been undertaken to realise the GST refunds to which ADF was entitled, to which I have referred above, and to comply with the Receivers' statutory obligations and also to seek Court approvals in accordance with the orders under which they were appointed.
4. I have had regard to summaries of work done by the Receivers and their staff involved in the matter (Ex BFK-5, tab 12) and work in progress reports which show work done by each of those persons with a corresponding time entry and narration of the task performed (Ex BFK-5, tab 13). I have also had regard to Mr Kogan's evidence that most of the work in respect of which remuneration is claimed in this application was carried out by two staff members, an Assistant Manager with 3 years of experience, a Senior Manager with 7 years of experience, and by Mr Kogan, and to his evidence of the major tasks undertaken by them and his explanation why it was appropriate for the work to be done by persons of the relevant levels of experience and seniority (Kogan 7.7.17 [13]-[19]). That evidence does not raise the concerns that may arise where many staff members work on a matter, raising risks of duplication, or where work is not allocated to persons of appropriate seniority. Ms Beechey submits, and I accept, that Mr Kogan's affidavit evidence and the supporting documentation demonstrate that the work done by the Receivers was reasonable and necessary for the proper conduct of the ADF receivership.
5. Ms Beechey also points out the hourly rates charged by the Receivers for their work in respect of this receivership are discounted from their firm's standard rates, depending on the position of the person undertaking the work (Kogan 7.7.16 [12], Annexure G) and are less than those referred to by Brereton J in Re The Dominion Insurance Company of Australia Ltd (subject to Scheme of Arrangement) [2013] NSWSC 898; (2013) 276 FLR 338 at [48], at which the Receivers were previously granted permission to draw down remuneration on a monthly basis (Order 4(n), Ex BFK-5, tab 3) and have not been increased over the 3 years and 8 months of the ADF receivership (Kogan 25.6.17 [31]). Ms Beechey submits, and I accept, that these matters support the conclusion that the Receivers' hourly rates are reasonable rates.
6. The Receivers also seek approval of a fixed fee in the amount of $25,416.60 for the period 27 May 2017 to the date of this hearing, reflecting Mr Kogan's estimate of the work that was likely to be required through to completion of the receivership (Kogan 25.6.17 [36]). Mr Kogan's evidence is that the time costs of the work done by the Receivers and their staff in that period exceeded, by a relatively small amount, the amount of the fixed fee prior to 30 June 2017 (Kogan 25.6.17 [37]; Kogan 7.7.17 [20]-[21]) and the work done during this period is also recorded in work in progress reports (Ex BFK-5, tab 13; Kogan 7.7.17, Annexure H). The Receivers do not seek to increase the amount claimed beyond the fixed fee of $25,416.60 for this period and I am satisfied that remuneration in that amount may properly be ordered.
7. As Ms Beechey points out, the amount of the remuneration requested as a proportion of recoveries made may be a useful cross-check of the reasonableness of remuneration: Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) above at [55]. The total of the remuneration previously fixed by the Court for earlier periods and the amount now claimed by the Receivers, for the period of 3 years and 8 months of the ADF receivership, is $806,760.90. That is plainly a substantial amount. However, the Receivers made recoveries of approximately $26.54 million in that period. Excluding amounts recovered in connection with public examinations and litigation, as to which the Receivers' remuneration and expenses were funded by the CBA and are not claimed in this or previous applications to the Court, the recoveries made by the Receivers to date are approximately $15.24 million. Their total remuneration, as previously fixed by the Court and requested in this application, is 3.04% of total recoveries including those as to which the Receivers do not claim remuneration in this or previous applications and 5.29% of recoveries as to which the Receivers have claimed remuneration in this and previous applications. Ms Beechey also points out that there has been a substantial return to creditors in the receivership, such that the total amount of distributions to creditors will exceed $23,574,944.74 and creditors of ADF will have received more than 61 cents in the dollar on their debts. Ms Beechey submits, and I accept, that these proportions do not give reason to doubt the proportionality of the remuneration claimed in a large and complex receivership.
8. Order 4(k) of the orders made by the Court appointing the Receivers provides for their "reasonable expenses" to be fixed by the Court "pursuant to r 26.4 of the Uniform Civil Procedure Rules", although that rule in terms deals only with remuneration. The Receivers accept that the proper reading of those orders contemplates that their reasonable expenses are to be fixed by the Court. The expenses of the Receivers for which approval is sought in this application comprise legal fees, fees in respect of tax advice obtained from a third party accounting firm and modest bank charges (Kogan 25.6.17 [40]; Ex BFK-4, tab 14). The amount of expenses requested to be fixed in respect of the 9-month period is $318,727.83, plainly also a substantial amount, which includes legal fees for the Receivers' previous application for approval of a distribution to creditors, their accounts and their remuneration and for this application. The Receivers do not seek to have any amount fixed in respect of expenses incurred after 9 June 2017 and do not seek to recover those expenses (Kogan 25.6.17 [42]). The rates charged by the solicitors primarily retained by the Receivers were discounted for work done by some categories of staff, including partners, special counsel, senior associates and some lawyers (Kogan 7.7.17 [12]; Annexure G), although that discount did not extend to more junior staff. There is no suggestion those rates were not negotiated at arm's length or are out of market and I accept that they were reasonable in the circumstances. Mr Kogan's evidence is that he believes that the expenses incurred by the Receivers were properly and reasonably incurred and were required to be incurred in order to achieve the Purpose of the receivership as defined in the orders appointing the Receivers (Kogan 25.6.17 [41]).
9. I am satisfied that the orders sought in respect of the Receivers' remuneration and expenses should be made. I may more readily draw that conclusion where the two creditors of ADF, at least one of which is a sophisticated financial institution which would have considerable experience in receiverships, consent to the orders sought.

Discharge and release

1. The orders appointing the Receivers provided that, upon their achieving the object of the Purpose of the receivership (as defined in the appointment orders), they are to apply to the Court for an order that they be discharged (Order 4(m)). The "Purpose" of the receivership is defined in order 4 of those orders as: "…equitable execution with the object of ascertaining the assets and the liabilities of the defendant [ADF], realising its assets, and distributing after Court approval the assets of the defendant [ADF] in payment of its creditors …"
2. The Receivers now seek orders discharging and releasing them as joint and several receivers and managers of ADF. Mr Kogan's evidence is that he believes that, subject to the making of orders for the final distribution as sought in this application, the Purpose (as defined) of the Receivers' appointment has been achieved (Kogan 25.6.17 [45]). Ms Beechey refers to the tasks undertaken by the Receivers over the course of the receivership, including securing the books, records and assets of ADF; conducting investigations and public examinations; ascertaining ADF's assets and realising those assets, other than any remaining Lehman Brothers dividends to be distributed by way of the proposed irrevocable direction, to the extent of recoveries of $26.54 million; conducting litigation; adjudicating proofs of debt, including applying to the Court for directions in respect of one of those proofs of debt; causing ADF to participate in a Forbearance Deed, which provided for the withdrawal of three other proofs of debt and the issue by APT of an irrevocable direction to the Receivers to pay all future dividends otherwise payable to APT to CBA; seeking approval for and paying three interim distributions totalling $23,001,678.40 to ADF's creditors, and now applying to distribute a further $573,266.34 and any further Lehman Brothers dividends; having their six-monthly accounts passed, and their remuneration and expenses fixed, on four occasions; filing six-monthly accounts with the Australian Securities and Investments Commission; and dealing with other matters and attending to statutory duties of ADF and the Receivers (Kogan 18.11.16 [17]-[19], [35-[55], [64]-[67], [74]-[79], Ex BFK-4, tab 8; Kogan 25.6.17 [9], [18]; Ex BFK-5, tab 8).
3. Ms Beechey submits, and I accept, that it has been established that the Purpose (as defined) of the receivership has been achieved. I may also more readily draw that conclusion and make the orders sought where ADF's creditors support the discharge and release of the Receivers and no person opposes this application.

Orders

1. I make orders in accordance with the short minutes of order initialled by me and placed in the file.

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