Scott (trustee) v Stolyar, in the matter of Stolyar [2024] FCA 659 | Case summary

C. Receiver's remuneration and expenses 18 The principles governing the remuneration of Court appointed receivers are well established. 19 In Deppeler, in the matter of Moulamein Grain Co-Operative Limited (in liquidation) [2024] FCA 65 at [13], O'Callaghan J provided the following comprehensive summary of those principles, which I respectfully adopt: As an officer of the court, a receiver is required to obtain court approval for the payment of remuneration to themselves. See Cape v Redarb Pty Ltd (Receiver and Manager Appointed) (1991) 32 FCR 407 at 417. Rule 14.24 of the Federal Court Rules 2011 (Cth) provides that a receiver may apply to the court to have the court fix the receiver's remuneration. Exercise of that power is governed by the general principle that the court should only allow remuneration which is fair and reasonable. See, by way of example only, Australian Securities and Investments Commission v Linchpin Capital Group Ltd (No 3) (2020) 142 ACSR 193; [2020] FCA 44 at [7]. The relevant principles were summarised by Brereton J in Re Say Enterprises Pty Ltd [2018] NSWSC 396 at [6], namely: (1) A receiver is entitled to the costs, charges and expenses properly incurred in the discharge of the receiver's ordinary duties, or in the performance of extraordinary services that have been sanctioned by the court. (2) The ultimate question is what amount of remuneration is "reasonable", and this involves considering whether the work in respect of which remuneration is claimed was reasonably undertaken in the due course of the receivership, and whether the amount claimed for it is a fair and reasonable reward for it. The objective is to award a sum or devise a formula which will reasonably and fairly compensate the receiver for the time and trouble expended in the execution of his or her duties and the responsibility he or she has assumed. (3) The receiver bears the onus of justifying the reasonableness and prudence of the tasks undertaken for which remuneration is sought, and the reasonableness of the remuneration claimed for them. (4) Remuneration may be allowed on the basis of a fixed salary, a commission on receipts, or a quantum meruit having regard to the time, trouble and responsibility involved. It is a matter for the court to determine what basis is appropriate in the particular case, having regard to the principle that the remuneration must be reasonable. (5) If a time-based approach is adopted, the court is guided by professional scales of charges, with emphasis on the broad average or general rate charged by persons of the relevant status and qualifications who carry out the relevant type of work. The court will usually act on time sheets created in the receiver's office, provided that they do significantly more than merely detail the total number of hours spent by the receiver and officers of particular grades on his or her staff. (6) By analogy, the task involves consideration of the matters referred to in s 425(8) of the Corporations Act 2001 (Cth) which applies to receivers appointed under an instrument, namely: (a) the extent to which the work performed by the receiver was reasonably necessary; (b) the extent to which the work likely to be performed by the receiver is likely to be reasonably necessary; (c) the period during which the work was, or is likely to be, performed by the receiver; (d) the quality of the work performed, or likely to be performed, by the receiver; (e) the complexity (or otherwise) of the work performed, or likely to be performed, by the receiver; (f) the extent (if any) to which the receiver was, or is likely to be, required to deal with extraordinary issues; (g) the extent (if any) to which the receiver was, or is likely to be, required to accept a higher level of risk or responsibility than is usually the case; (h) the value and nature of any property dealt with, or likely to be dealt with, by the receiver; (i) whether the receiver was, or is likely to be, required to deal with: (i) one or more other receivers; or (ii) one or more receivers and managers; or (iii) one or more liquidators; or (iv) one or more administrators; or (v) one or more administrators of deeds of company arrangement; (j) the number, attributes and behaviour, or the likely number, attributes and behaviour, of the company's creditors; (k) if the remuneration is ascertained, in whole or in part, on a time basis; (l) the time properly taken, or likely to be properly taken, by the receiver in performing the work; (m) whether the total remuneration payable to the receiver is capped; and (n) any other relevant matters. (7) Many of those factors - in particular, pars (d)-(e) and (g)-(h) - have as their unifying theme the concept of proportionality (being the relationship of the work done and the remuneration claimed to the value of the estate), which is an important consideration in determining reasonableness. (8) In respect of disbursements, no court approval or specific order is necessary in the absence of a challenge, although receivers should scrutinise them to ensure that they are reasonable and properly payable, and the court has an inherent jurisdiction to review receivers' disbursements as they are officers of the court. 20 The orders that I made in Scott included an order that the costs and disbursements of the Receiver be borne from the Sale Proceeds on an indemnity basis, but only after the Court has approved the amount of them. 21 The Receiver seeks an order for payment of his remuneration and disbursements in the sum of $87,808.08 (including GST), comprising his remuneration in the amount of $40,379.35 and $47,428.73 for legal costs and disbursements. These amounts were supported by work in progress reports extracted from software used to record work performed with respect to the sale of the Shares, and included an estimate of $7,000 for legal costs and disbursements incurred on the day prior to and the day of the hearing. 22 The Receiver does not seek any remuneration for work undertaken after 16 April 2024 (time costed at $4,191.55). 23 The Receiver's work in progress reports establish that most of the work undertaken by the Receiver on the Share Sales was undertaken by an Associate Director and a Senior Analyst of the Receiver's firm. The Receiver gives evidence that the work performed included, but was not limited to, the following: (a) liaising with the Trustee, his staff and legal representatives; (b) considering offers from third-party institutions regarding the sale of the Shares; (c) obtaining and considering quotes from brokers to assist with the sale; (d) discussing strategy with CommSec regarding the sale of the Shares and obtaining advice relevant to the Share Sales; (e) providing updates to the Trustee's solicitors; (f) instructing solicitors to prepare an account, as per the Court's orders; (g) discussions with solicitors on the account and providing instructions on the filing of the account; and (h) discussions with solicitors regarding the application for the Court to approve remuneration, and providing instructions. 24 Ms Stolyar submits that the Receivers' costs and disbursements should be capped at $10,000 because the Receiver in substance did no more than retain CommSec to sell the Shares in the same manner that she had previously sold shares in CTP and the Shares were sold at an unfavourable price on market. She submits that given all the Shares were purchased by a single purchaser, a director of CTP, a much better price could have been obtained if a direct approach was made to that purchaser rather than attempting to sell them on market. 25 The sale of a large block of shares in a relatively illiquid stock is an inherently difficult exercise. With the benefit of hindsight, it is often possible to propound alternative sale strategies that might have led to a more favourable result. Here, the Shares were relatively illiquid and there was a significant risk that if they were not sold in an orderly manner their value would be materially diminished, and CommSec had refused to sell the Shares on behalf of Ms Stoylar: Scott at [14] and [24]. 26 Significantly, the Trustee, the party whose interests are impacted by the quantum of the Receiver's application for payment of his costs and disbursements, does not seek to contest the quantum sought by the Receiver. While Ms Stolyar seeks to have the Receiver's costs and disbursements capped at $10,000, as I explain below, she has not established that she has any entitlement to the Sale Proceeds. 27 I am satisfied from my review of the evidence relied on by the Receiver that the work which was undertaken by the Receiver and his staff with respect to the Share Sales for the period December 2023 to March 2024, and the period thereafter to compile an account, was properly undertaken in the due course of the receivership. I am satisfied that the work undertaken was reasonably necessary and the amount claimed was fair and reasonable. 28 In my view the Receiver's professional fees of $40,379.35 (including GST) are fair, reasonable and proportionate to the work required to be undertaken to effect the Share Sales and comply with the orders made by the Court on 22 December 2023. 29 I turn now to consider the $47,428.73 (including GST) claim by the Receiver for legal costs and disbursements. The amount claimed comprised $24,400.23 for the period to 18 April 2024, $15,493.50 for the period from 18 April 2024 to 12 June 2024 and an estimate of $7,000 for 13 and 14 June 2024 (the day before and the day of the hearing). 30 Ms Stolyar submitted that the Receiver should not have retained independent legal representation because the Receiver could have used the Trustee's solicitors to file the account with the Court. 31 I am satisfied that it was necessary for the Receiver to retain independent legal representation in order to address any potential conflict of interest that might arise with respect to the quantum of fees and disbursements that the Receiver might seek, or issue that might arise with the manner in which the Shares were sold. A conflict might arise in the event of a dispute because the amount that the Trustee would receive from the sale of the Shares would always be reduced by the quantum of the Receiver's costs and disbursements approved by the Court. 32 The Receiver's legal advisors' work in progress reports reveal that the recording of fees has also been undertaken on a time-costed basis, where each entry reflects the work undertaken by that legal advisor, and not all work undertaken by the Receiver's legal advisors were charged to the Receiver. The solicitors for the Receiver have not sought payment for a proportion of the work that they have undertaken on behalf of the Receiver (time costed at $3,774.10). It is not entirely clear why these amounts have not been sought given the description of the work to which they relate in the time cost records, but it does provide the Court with some comfort that the time cost records were reviewed with some care to determine what professional costs should be sought from the Receiver. 33 The Receiver gives evidence that the work undertaken by his lawyers on his instructions comprised the following tasks: (a) provision of advice and preparation of the account; (b) finalisation of the account; (c) miscellaneous communications between the solicitors and the Receiver concerning the account and the application for remuneration; (d) preparation of the evidence regarding the account and the application for remuneration; (e) preparation of submissions to approve the remuneration and release of the Receiver; and (f) preparation for hearing of the application for approval and release of the Receiver. 34 The Receiver submits that in light of the orders made by the Court, the amount claimed for the work undertaken by his lawyers is fair, reasonable and proportionate to the steps required to bring the Receiver's appointment to finality and give effect to the Court's orders. 35 While I have some concerns about the quantum of the legal disbursements incurred by the Receiver, I am satisfied that that the work undertaken by the Receiver's legal advisors was necessary in order for the Receiver to comply with the orders made by the Court with respect to the sale of the Shares. Much of the work undertaken by the Receiver's legal advisors would have to have been undertaken irrespectively of the position taken by Ms Stolyar, but I am satisfied that the opposition of Ms Stolyar to both the quantum of the costs and disbursements sought by the Receiver and the Trustee's application for the net Sale Proceeds to be paid to him, are likely to have materially increased the legal costs and disbursements of the Receiver.

D. Payment of the balance of the Sale Proceeds 36 A charging order is a means of enforcement available for judgment debts in the Supreme Court of New South Wales pursuant to s 106(1)(c) of the Civil Procedure Act 2005 (NSW). It was, therefore, an order that was able to be made in the primary proceedings pursuant to s 53 of the Federal Court of Australia Act 1976 (Cth). 37 A charging order operates "to charge the [asset] in favour of the judgment creditor to the extent necessary to satisfy the judgment": s 126(2)(a) of the Civil Procedure Act 2005 (NSW). Further, s 126(5) of the Civil Procedure Act 2005 (NSW) provides: A charging order entitles the judgment creditor, in relation to the [asset] charged by the order, to any relief to which the judgment creditor would have been entitled had the charge been made to the judgment creditor's favour by the judgment debtor. 38 It follows that a judgment creditor therefore has the same rights as any other equitable chargee. These include the right to have, by separate process, the charged property appropriated to satisfy a judgment debt. 39 The ordinary remedy is the ordering of a judicial sale and the Court will grant such remedy without the creditor being required to show any special circumstances: Galbally and O'Bryan v Easton [2016] NSWSC 77 at [69]-[74] (Hallen J); Mathieson Nominees v Aero Developments & Ors [2016] VSC 131 at [76]-[79] (Vickery J). 40 The charging order entitles the Trustee to be paid the debt the subject of the charging order out of the net proceeds of the sale of the Shares. 41 Ms Stolyar submits, however, that the balance of the Sale Proceeds should be paid to her, principally for the purpose of enabling her to retain legal representation to resist the claims made by the Trustee in connection with an accounting of the net sale proceeds of a property known as 2C Dumaresq Road, Rose Bay (Rose Bay property) pursuant to an order made by Markovic J on 6 September 2022 in the primary proceedings. Ms Stolyar submits that she would be irretrievably prejudiced if the Sale Proceeds are not paid to her because she has no other access to funds to enable her to retain lawyers to resist the Trustee in the primary proceedings. She submits that, on the other hand, the Trustee could recover the judgment debt of $5,544,782.46 from her Rose Bay property and is therefore not prejudiced if the Sale Proceeds were not paid to him. She also submits that it would be unfair to permit the Trustee to recover the Sale Proceeds given the Shares were sold at prices that were significantly less than what could have been achieved if freezing orders had not been obtained by the Trustee and the Shares had been sold earlier. 42 The Trustee submits in response that Ms Stolyar is resisting the Trustee's attempts to realise the Rose Bay property and that a significant proportion of the likely proceeds of the Rose Bay property would be required to satisfy the likely accounting to be ultimately ordered by the Court in the primary proceedings. 43 More fundamentally, the Trustee submits that the charging order entitles the Trustee to be paid his debt out of the Sale Proceeds and the charging order is not (nor could it be) challenged in these proceedings, and thus no basis exists to deprive the Trustee of his legal entitlement. 44 In the absence of any challenge to the validity of the charging order, I cannot discern any basis on which the Court could deprive the Trustee of the Sale Proceeds. The claim by Ms Stolyar to the Sale Proceeds is misconceived.

Scott (trustee) v Stolyar, in the matter of Stolyar

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