Order 6 - Liquidator's remuneration and disbursements
104 In the course of his oral address, Mr Rose (who appeared for the applicant) obtained instructions that proposed order 6 was no longer sought. He indicated that an application in respect of the liquidator's remuneration and disbursements might be made at a later date. These instructions were obtained after I raised several concerns relating to proposed order 6. For convenience and future guidance, I will now set out those concerns.
105 Prior to amendments made by the Insolvency Law Reform Act 2016 (Cth), which introduced the new Insolvency Practice Schedule as Sch 2 to the Corporations Act, the Court's power to approve a liquidator's remuneration was sourced in s 473(3) of the Corporations Act. Relevant factors to the exercise of that power were specified in s 473(10). The meaning and application of those provisions was discussed in cases such as Sanderson as Liquidator of Sakr Nominees Pty Limited (in liquidation) v Sakr [2017] NSWCA 38; 93 NSWLR 459 and Royds v Royds, in the matter of Caloola Holdings Pty Ltd (in liq) [2017] FCA 731.
106 Division 60 of Pt 3 of Sch 2 (The Insolvency Practice Schedule) now contains general rules relating to external administrations, including provisions dealing with the remuneration of an external administrator (which is defined in s 5-20(c) to include the liquidator of the company). It also includes provisions relating to the review of the external administration by the Court. The simplified outline in s 60-1 states that the external administrator is entitled to receive remuneration for necessary work properly performed by him or her in relation to the external administration and that the amount of remuneration will usually be set by a remuneration determination which, in most cases other than a member's voluntary winding up, will be made by the creditors or a committee of inspection. If there is no remuneration determination, the external administrator is entitled to receive "a reasonable amount for the work up to a maximum amount of $5,000 (exclusive of GST)". The simplified outline also states that the Court may review the remuneration of an external administrator and make orders under Div 90 about remuneration.
107 The detailed provisions which give effect to the outline are in s 60-5 ff. Section 60-10 provides that a remuneration determination may be made by a resolution of the creditors or a committee of inspection (if there is one) for necessary work properly performed by the external administrator in relation to the external administration. Significantly, this provision also empowers the Court to make such a remuneration determination if, relevantly, there is no such resolution of the creditors or a committee of inspection (s 60-10(1(c)).
108 Relevantly, in making a remuneration determination under s 60-10(1)(c) the Court must have regard to whether the remuneration is reasonable, taking into account any or all of several specified matters in s 60-12. It is desirable to set out the provision in full:
60‑12 Matters to which the Court must have regard
In making a remuneration determination under paragraph 60‑10(1)(c) or (2)(b), or reviewing a remuneration determination under section 60‑11, the Court must have regard to whether the remuneration is reasonable, taking into account any or all of the following matters:
(a) the extent to which the work by the external administrator was necessary and properly performed;
(b) the extent to which the work likely to be performed by the external administrator is likely to be necessary and properly performed;
(c) the period during which the work was, or is likely to be, performed by the external administrator;
(d) the quality of the work performed, or likely to be performed, by the external administrator;
(e) the complexity (or otherwise) of the work performed, or likely to be performed, by the external administrator;
(f) the extent (if any) to which the external administrator was, or is likely to be, required to deal with extraordinary issues;
(g) the extent (if any) to which the external administrator 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 external administrator;
(i) the number, attributes and conduct, or the likely number, attributes and conduct, of the creditors;
(j) if the remuneration is worked out wholly or partly on a time‑cost basis - the time properly taken, or likely to be properly taken, by the external administrator in performing the work;
(k) whether the external administrator was, or is likely to be, required to deal with one or more controllers, or one or more managing controllers;
(l) if:
(i) a review has been carried out under Subdivision C of Division 90 (review by another registered liquidator) into a matter that relates to the external administration; and
(ii) the matter is, or includes, remuneration of the external administrator;
the contents of the report on the review that relate to that matter;
(m) any other relevant matters.
109 The Court is also empowered under s 60-11 to review a remuneration determination where, for example, such a determination has been made by the resolution of the creditors.
110 A Court review of a remuneration determination may, subject to the exception in s 60-11(5), be sought by ASIC, a person with a financial interest in the external administration of the company or an officer of the company (s 60-11(1)).
111 The effect of these provisions is that the Court may itself make a remuneration determination under s 60-10(1)(c) but only if no remuneration determination has been made, relevantly, by resolution of the creditors or a committee of inspection. Where, however, the creditors have made such a resolution, an eligible person may apply to the Court for a review of that remuneration determination. In the present proceeding, the creditors have made a remuneration determination and no review has been sought of that remuneration determination. Rather, what the liquidator sought initially was effectively the Court's approval of the existing remuneration determination. For reasons which will now be developed, I consider that the Court does not have the power to grant the order sought initially by the liquidator in relation to his remuneration and disbursements.
112 First, I will explain why I consider that the provisions in Div 60 do not empower the Court to make order 6. The matters specified in s 60-12 to which the Court must have regard to in making a remuneration determination are similar to, but not identical with, the matters previously specified in s 473(10). One notable difference in the current list of matters when compared with the previous list is that the concept of whether the work performed by the liquidator was "reasonably necessary" has been now replaced by the matter of "the extent to which the work by the external administrator was necessary and properly performed" (emphasis added). Such differences may be relevant to the issue of the extent to which cases such as Sakr and Royds remain relevant to the current list of matters. It is unnecessary to determine that question in the present proceeding. That is simply because, for the following reasons, the Court has no power to make order 6 as sought by the liquidator.
113 Where (as noted above) the liquidator's remuneration was approved at the second creditors' meeting and no review has been sought by any eligible person of that remuneration determination, the Court has no power under Div 60 to make, in effect, a separate remuneration determination as sought by the liquidator (see [111] above).
114 Even if (contrary to the above), I was satisfied that the Court had power to make a remuneration determination under s 60-10(c), in the terms sought by the liquidator, there is insufficient material before the Court to indicate that the liquidator has complied with the requirements of rule 9.2 of the Federal Court (Corporations) Rules 2000 (Cth). In particular, although there is evidence that the liquidator arranged for copies of the originating process and affidavit in support dated 29 April 2019 to be served on the various entities specified in Sch 1 to the originating application after they had been filed, there is no evidence that the liquidator served a notice on those persons at least 21 days before filing the originating process, as required by rule 9.2(2).
115 Order 6 relates not only to the liquidator's remuneration, but also to costs or expenses (i.e. disbursements) incurred by the liquidator in conducting the liquidation, including legal fees. For the reasons given above, I do not consider that the Court has the power to make such a determination in relation to those matters having regard to the distinction which is drawn in Sch 2 between the external administrator's "remuneration" and "a cost or expense incurred by the external administrator". I respectfully agree with what Rees J said in In the matter of Day & Night Online Transport Pty Ltd [2019] NSWSC 292 at [22]:
22. However, a liquidator's remuneration does not include disbursements: In the matter of Stockford Limited (subject to Deed of Company Arrangement); (2005) 52 ACSR 279; [2004] FCA 1682 at [50] per Finkelstein J. As Brereton J explained In the matter of Sakr Nominees Pty Ltd [2016] NSWSC 709 at [8]: (footnotes omitted)
Ordinarily, the Court approval of a liquidator's remuneration does not include disbursements: the liquidator's right to indemnity in respect of out-of-pocket expenses depends on the general law relating to a trustee's right of indemnity. Whether, and to what extent, a liquidator is entitled to recoup a disbursement from the estate, ordinarily arises upon the taking of a trustee's accounts, or upon a misfeasance summons arising from a liquidator's accounts. Sometimes, a liquidator may seek a direction that he would be justified in paying certain disbursements in order to obtain prior protection in respect of such a disbursement.
This was not the subject of the appeal in In the matter of Sakr Nominees Pty Ltd [2017] NSWCA 38, nor further considered when the matter was remitted to Black J in In the matter of Sakr Nominees Pty Ltd [2017] NSWSC 668. See also In the matter of AAA Financial Intelligence Ltd (in liquidation) (No 2) [2014] NSWSC 1270 at [14]-[15]; Austin & Black Annotations to the Corporations Act (LexisNexis, looseleaf) at [5.IPSC.60] citing Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96; 16 ACLC 1653; GIS Electrical Pty Ltd v Melson [2001] WASC 314 at [55]; In the matter of Stockford Limited (subject to Deed of Company Arrangement); (2005) 52 ACSR 279; [2004] FCA 1682 at [50]-[51]; Re Huxtable Timeshare Resort Club Ltd (2010) 187 FCR 13; [2010] FCA 673 at [36]-[37]; Deputy Commissioner of Taxation v Starpicket Pty Ltd (No 2) [2013] FCA 699 at [15] cf. Re Solfire Pty Ltd (in liq) (No 2) [1999] 2 Qd R 182; (1998) 16 ACLC 1156.
116 For completeness, I should add that even if, contrary to the above, the Court had the power to grant order 6, insufficient material has been provided by the liquidator to determine whether or not his remuneration and/or the disbursements are reasonable. As to remuneration, the liquidator has provided some limited information, including that contained in a Statutory Report to Creditors dated 2 August 2018. Reference is made there to the creditors approving on 2 May 2018 remuneration for the liquidation up to the amount of $44,044. Reference is also made in the report to an estimate that the total remuneration for the liquidation will be approximately $66,000, inclusive of GST. Although further information is provided in respect of the figure of $44,044, no information is provided as to how the estimate was arrived at for future remuneration to complete the liquidation. The information provided is even more glaringly deficient in respect of the liquidator's disbursements in respect of legal costs. He has simply annexed multiple invoices from his solicitor which provide no particulars at all regarding the nature of the legal services provided, who provided them and what, if any, fee arrangement had been struck. The need for the liquidator to provide adequate material has been emphasised in numerous cases, including in Royds and In the matter of Plutus Payroll Australia Pty Ltd (in liquidation) [2018] NSWSC 1092 at [14]-[15] per Black J.
117 Secondly, I shall now explain why I consider that the Court is not empowered by the provisions in Div 90 to make Order 6. This Division contains provisions concerning the review of the external administration of a Company. The simplified outline in s 90-1 states that the Court may inquire into the external administration of a company either on its own initiative, on the application of the company, the external administrator, ASIC or a person with a financial interest in the external administration of the company, such as a creditor.
118 Section 90-15 provides for the orders which the Court may make in conducting such a review. Relevantly it provides:
90‑15 Court may make orders in relation to external administration
Court may make orders
(1) The Court may make such orders as it thinks fit in relation to the external administration of a company.
…
Examples of orders that may be made
(3) Without limiting subsection (1), those orders may include any one or more of the following:
…
(f) an order in relation to remuneration, including an order requiring a person to repay to a company, or the creditors of a company, remuneration paid to the person as external administrator of the company.
119 A non-exhaustive list of the matters which the Court may take into account in determining whether or not in its discretion to make an order under s 90-15 is set out in s 90-15(4).
120 In determining the proper construction of "remuneration" and whether it extends to include disbursements, it is relevant to consider Div 90 as a whole and to note in particular some of the provisions in Subdiv C of Div 90 which relate to review not by the Court, but by another registered liquidator. Such a review may look at a range of matters, including whether the remuneration of the external administrator is reasonable and whether costs and expenses have been properly incurred, as described in the simplified outline in s 90-1. Of particular relevance, however, is s 90-24, which provides that a registered liquidator may be appointed to carry out a review into either or both of the following matters:
(a) remuneration of the external administrator of the company;
(b) a cost or expense incurred by the external administrator of the company.
121 The significance of this provision lies in the fact that it is evident from the specification of the two limbs there that the expression "remuneration of the external administrator of the company" does not include "a cost or expense incurred by the external administrator". Rather, separate provision is made for what plainly is regarded as separate concepts.
122 The significance of this bifurcation is that, having regard to Div 90 as a whole, the provisions in Div 90 concerning the Court's power to make an order in relation to remuneration of an external administrator does not extend to making an order in respect of a cost or expense incurred by the external administrator save to the extent that express provision is made to the contrary. This view is supported by the authorities referred to at [113] above.