Venetian Nominees Pty Ltd v Conlan

CATCHWORDS : CORPORATIONS - winding up - creditors' voluntary winding up - fixing remuneration of liquidators - where committee of inspection does not pass resolution fixing remuneration - whether liquidator entitled to direction under Corporations Act 2001 (Cth), s511 - by whom should remuneration be determined

LEGISLATION CITED : Corporations Act 2001 (Cth), s499(3), s511(1)

Re ACN 004 323 184 Pty Ltd previously (Sheldon's Linen Service Pty Ltd (In Liquidation)) ( unreported Dodds-Stretton J Supreme Court of Victoria 29 August 2002) Re Solfire Pty Ltd (In liq) (No 2) [1998] 2 Qd R 92 CASES CITED : Re Stockford Limited (2004) 52 ACSR 279 Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 Walker & Anor as Liquidators of One.Tel Ltd [2005] NSWSC 557

PARTIES : Peter Murray Walker and Steven John Sherman in their capacities as Liquidators of One.Tel Limited (In Liquidation) (Plaintiffs)

Mr B A Coles QC with him Ms V E Whittaker (Plaintiffs) COUNSEL : Mr D J Fagan SC with him Mr H Stowe (for Members of Committee of Inspection)

Kemp Strang (Plaintiffs) SOLICITORS : Brown Wright Stein (for Members of the Committee of Inspection)

• 9 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4866/05 IN THE MATTER OF ONE.TEL LIMITED (IN LIQUIDATION) - PETER MURRAY WALKER AND STEVEN JOHN SHERMAN IN THEIR CAPACITIES AS LIQUIDATORS OF ONE.TEL LIMITED (IN LIQUIDATION) JUDGMENT Issue 1 The plaintiffs, Messrs Walker and Sherman are the liquidators of One.Tel Limited (In Liquidation) (One.Tel). They seek an order pursuant to s511(1) of the Corporations Act 2001 (Cth) that they are entitled to remuneration for particular amounts for certain periods between 1 October 2004 and 15 July 2005. Facts 2 Mr John Deloughery and Mr Gary Phillips are members of the Committee of Inspection of One.Tel. By order made on 19 September 2005 leave when leave was given to them to be heard in these proceedings. In effect they have acted as contradictors. 3 Most of the facts relevant to this judgment are set out in the judgment of Barrett J in Walker & Anor as Liquidators of One.Tel Ltd [2005] NSWSC 557. In those proceedings the liquidators sought orders that in the event the Committee of Inspection failed to fix their remuneration the creditors could do so; and failing that the court should do so. His Honour dismissed the originating process holding that there was no power in the body of creditors to fix the remuneration in the case of a creditors' voluntary winding up if there were a Committee of Inspection. It will be necessary for a proper understanding of this judgment to read the judgment of Barrett J. For that reason I do not intend to discuss the matters referred to by His Honour in that judgment further. 4 The present position is that while the fees of the liquidators up to 30 September 2004 have been agreed or fixed by the Committee of Inspection no fees have been agreed for the work of the liquidators since 1 October 2004. They have payment fee claims for four periods as follows:

1. 1 October 2004 to 30 November 2004 - $151,724.20. 2. 1 December 2004 to 31 March 2005 - $330,304.50 3. 1 April 2005 to 30 April 2005 - $64,966.10 4. 1 May 2005 to 15 July 2005 $129, 278.20.

To each of these amounts GST is to be added. 5 This is a creditors' voluntary winding-up. In such a case s499(3) of the Corporations Act provides: The Committee of Inspection, or, if there is no such committee, the creditors, may fix the remuneration to be paid to the liquidator. 6 Barrett J in his decision held that as there was a Committee of Inspection, the creditors had no part to play in fixing the remuneration. Thus if the Committee of Inspection fails to fix the fees it is necessary for there to be some alternative method of determining the remuneration for the liquidators. 7 As originally constituted the Committee of Inspection had seven members. By the time of the hearing before Barrett J this number had been reduced to four. There was in effect a two/two deadlock on the committee as to the fees. 8 As I have said Barrett J decided that the court had no power to invest a meeting of creditors with power to fix fees. Thus he dismissed the proceedings before him. However, paragraph 33 of the judgment reads as follows: 33 In the present case, if the liquidators, having exhausted all reasonable avenues of discussion and debate with the Committee of Inspection, considered that they had reached an impasse, they might possibly think it appropriate to consult with the general body of creditors with a view to either ascertaining the wishes of creditors concerning possible reconstitution of the committee or obtaining some indication of creditors' attitude to the matters causing the impasse. In referring to these possibilities, I am not to be taken to be suggesting that it is necessary or advisable that the liquidators proceed in either of the ways outlined. It is a matter for them. If the statutory means of fixing the liquidators' remuneration prescribed by s.499(3) are ultimately shown to be unworkable (as in, for example, the Colgate case), the court will be in a position where it can, upon an appropriate application being made, itself determine the quantum of remuneration pursuant to s.511(1)(a). The "question" of the quantum will be in need of determination and its determination will, in the circumstances postulated, be "just and equitable". Section 511(1)(a) will not, however, justify Order 1 as now sought since that order envisages unauthorised action by the court to empower a meeting of creditors. 9 The Committee of Inspection was reduced to three members on 31 March 2005. Those three persons were, Barbara Galloon representing Optus Communications Limited and other Optus companies with admitted claims of approximately $66 million; Gary Phillips representing Mr Beck a former director of One.Tel with a claim of approximately $31,000 and a Mr John Deloughery representing 19 creditors with claims admitted of approximately $10.23 million. 10 The annual general meeting of creditors of One.Tel took place on 23 August 2005. Four additional persons were appointed to the Committee of Inspection perhaps as a result of the liquidators' suggestion that a committee of three was unrepresentative and unsuitable to such a large liquidation. The liquidators also took up a suggestion of Barrett J and provided a means by which creditors could express their view on whether the claimed remuneration should be approved. The result of this plebiscite was that ten creditors with admitted claims of $153,442, 879.56 indicated approval of the fees and that four persons at the meeting with claims of approximately $8,221,003 did not approve. 11 A meeting of the Committee of Inspection completed on 30 August 2005 and called solely to consider the question of remuneration did not pass any resolution fixing or approving the fees. Again there was a deadlock, the voting being three for and three against. One member of the committee was not present or if he was present did not vote. 12 This is a major liquidation. There are admitted claims of $335 million. Other claims have not yet been determined. It is of course a liquidation engaging much public interest. Remuneration for various separate periods from 25 July 2001 to 30 September 2004 has been approved by the Committee of Inspection in amounts totalling $10,343,000. There is now a deadlock. 13 For each of the periods now relevant the liquidators furnished the Committee of Inspection with information similar to that provided for earlier periods where payments were approved. Such material comprised:

(a) a summary of the liquidators' fees by issue (this set out the issues addressed by time by month);

(b) a schedule of time costs for the period by employee showing hourly rates;

(c) a summary or explanation of work in relation to major fee categories.

What this did not show was the particular work or area of work for each fee earner in respect of the summary of work for the period. It is perhaps appropriate to point out that the hourly rates have not changed since the liquidators were appointed. 14 Two resolutions were notified and put to the meeting of creditors, the proposer being Mr Phillips and the seconder Mr Deloughery. They were

(a) A cost consultant be employed to advise on the reasonableness of fees not approved to date;

(b) That the cost consultant report back to the creditors on the reasonableness of all fees approved to date.

On both resolutions a majority in number was in favour but a majority in value was against. Both resolutions therefore failed. The liquidator did not exercise the casting vote and it would have been inappropriate for him to do so in view of the conflict of interest. 15 The liquidators obtained and provided to the annual meeting of creditors a report of Mr Parbury as to their fees. This was before me as part of the material forwarded to creditors for the purpose of their giving consideration to the fees on the basis suggested by Barrett J and also presumably to assist discussion of the two resolutions as to checking of fees by a cost consultant. On no basis was it brought forward as an expert report in the proceedings before me. The fact that Mr Parbury reported to the solicitor for the liquidators in terms generally supporting the basis of charging (time basis) and other matters such as whether the work done was necessary; whether it was performed in a reasonable time; whether persons at an appropriate level did the work; and whether the rates were reasonable; is of little assistance when most of the answers were to the effect that all seemed in order and that if members of the Committee of Inspection required further information then they should seek it. 16 It is apparent that those members of the Committee of Inspection representing smaller creditors have concerns about the level of fees. Those representing the larger creditors appear to be satisfied about the fees. Some committee members representing large creditors have resigned. Generally speaking it is probably true that in big long term liquidations the major creditors move on to other activities which is something more difficult for smaller creditors. 17 It is unnecessary to go into all the communications between the liquidators and members of the committee to decide what the plaintiff/liquidators wish me to decide. They seek a direction pursuant to s511(1) of the Corporations Act that the fees claimed are proper fees to be paid. On the evidence put forward of the accounts and supporting documents it is not possible to come to that conclusion. If the position were clear then no doubt a judge would make the necessary order, there being, in light of the impasse, a question in need of determination in the winding up. But in a case where it is not clear it is my view not appropriate for a judge to fix the remuneration in default of fixing by the committee. In past times when fees of liquidators were regularly determined or passed by the court this was traditionally a function of the Registrar in Equity. That in my opinion remains the position now. 18 Senior Counsel for the opponents in his careful argument placed stress upon decisions in similar matters particularly in Re ACN 004 323 184 Pty Ltd previously (Sheldon's Linen Service Pty Ltd (In Liquidation)) Dodds-Stretton J Supreme Court of Victoria 29 August 2002; Re Solfire Pty Ltd (In liq) (No 2) [1998] 2 Qd R 92; Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 and Re Stockford Limited (2004) 52 ACSR 279. It is not necessary to discuss these cases in detail. Generally speaking the liquidator is entitled to such remuneration as is fair and reasonable. If the committee or creditors, as applicable, fail to fix it then the court must do so. For this to happen the liquidators must provide proper details and information necessary for the appropriate officer of the court to perform the task. Corporations Rule 9.4 provides guidance by way of the requirements in court ordered liquidations. The information required for the present determination includes not only a general description of the work done, but details of the work actually performed by each person whose charges and hourly rates are included in the account. As Finkelstein J pointed out in Re Stockford it is too late to consider whether time-based charging is reasonable or justified although much of his judgment in that case dealt with concerns and problems about that manner of charging. In the light of the decision reached a large part of that judgment is really obiter but nevertheless it contains a very helpful historical analysis of fee setting methods and some helpful suggestions as to what details are required to enable a Committee of Inspection to perform its function as to fixing fees or agreeing to fees. 19 Mr Fagan, SC placed great emphasis on the statements in the cases listed of the requirement not only to list the work done but to show what fee earner did the work. This is a check on hours spent but also a check to determine whether work was done at an appropriate level. Lest it should be thought that the appropriate level argument was one which carried the day for the objectors I think it necessary to make it clear that while a particular task may be appropriate to a particular level employee, it is quite possible that the liquidator himself charging an hourly double or triple that of the appropriate level employee may be able to do the work in one quarter of the time. That is always a risk in time costing. 20 Finally, Mr Fagan placed a lot of emphasis on paragraph 49 in the judgment in Re Stockford as follows: If the administrator is to ask the creditors to fix his fees then the information in support of that claim may need to be more detailed than in an application to the court. My fear is that if the request is made to the creditors the fees will not be closely scrutinised. In the first place, in a large administration the task of scrutiny will be a difficult one. Second, creditors, or even a small committee of creditors, will often lack the knowledge to be able to mount a successful challenge to the practitioner's claims. Third, the creditors (even a committee of creditors) may not think that the effort is worthwhile. Thus, the greater the detail presented to the creditors the easier their task will be. Nevertheless, in a large administration it is likely that the creditors will need to call in a cost consultant. 21 No doubt it was because of this paragraph that Mr Phillips brought forward the cost consultant resolution and as to a cost consultant review. I have great reservations about this suggestion. First, neither counsel was able to say that any such consultants existed in the field of liquidators' remuneration; second, Mr Phillips put forward two legal costs consultants as suitable; and I can see no reason why it should be thought they would be suitable and third, I would be very reluctant to support the setting up of a new sub-industry at considerable expense to the creditors. 22 As I have said the plaintiffs cannot, on the present evidence, obtain the orders sought. However, the problem must be resolved as the deadlock is, I think, now clear. Details should be provided of the work done by each fee earner and the hours for which fees are claimed for particular work of that fee earner. Mr Fagan said that if that were done his clients might be satisfied and the Committee of Inspection might then approve the fees. That, at least, should be tried as that is information which will have to be provided in any event if the court is to fix the remuneration. If agreement is not then obtained I propose to direct that a registrar or deputy registrar in equity determine the reasonable remuneration of the liquidators for the claimed periods. This approach is consistent with Clynton Court Pty Limited (2005) 53 ACSR 432 and Re Carlovers CarWash Limited (2005) 54 ACSR 696. Draft orders 23 Direct the liquidators provide to the Committee of Inspection by 21 November 2005 details identifying items of work done, persons doing such work, time taken for such items of work and rates claimed for such time in respect of each of the periods for which a remuneration claim is made. 24 Stand over to 29 November 2005 at 0930 for further directions and final orders. **********

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.