Venetian Nominees Pty Ltd v Conlan

The applicable legal principles

1. The principles applicable to the approval of a claim for remuneration by a court-appointed receiver are well established and no issue of controversy arises in respect of them in this application. A receiver's right to recovery of expenses is analogous to a trustee's right to indemnity: Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96; Re Stockford Ltd; Korda [2004] FCA 1682; (2004) 140 FCR 424; 52 ACSR 279 at [50]; AAA Financial Intelligence Ltd (in liq) (No 2) [2014] NSWSC 1270; (2014) 32 ACLC 14052; Re Wine National Pty Ltd [2016] NSWSC 4 at [12]. Mr Martin, who appears for Mr Smith, referred to my summary of the relevant case law in Re Wine National Pty Ltd above at [13]ff, where I observed that: "The remuneration of a Court-appointed receiver may be approved by the Court which appointed that receiver: Australian Securities and Investments Commission v Lawrenson Light Metal Die Casting Pty Ltd [1999] VSC 500; (1999) 33 ACSR 288. In Ide v Ide [2004] NSWSC 751; (2004) 50 ACSR 324 at [39]ff, Young CJ in Eq described the Court's role in determining such an application (omitting authorities) as follows: "First, the court constituted by a judge, never considers a review of quantum, but only matters of principle. Secondly … a receiver is entitled to have his costs, charges and expenses properly incurred in the discharge of his ordinary duties, or in the performance of extraordinary services which have been sanctioned by the court. Thirdly …:The receiver must justify the reasonableness and prudence of the tasks undertaken for which remuneration is sought, in the same way as he must justify the reasonableness and prudence of incurring disbursements for which he seeks allowance and reimbursement. Thus, as with a falsification of accounts, the relevant onus is on the receiver. Fourthly, it must always be remembered that a receiver's remuneration is not in the same category as costs … The receiver is making application for a fair recompense for what he or she has properly done. The award is in the discretion of the court according to well known guidelines … Fifthly, the court's objective is to award a sum or devise a formula which will reasonably compensate the receiver for the time and trouble expended in the execution of his duties and, to some extent, the responsibility he has assumed … the vital question is what is the value to the estate of the work done by the receiver ... Sixthly, the court will usually work off 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 …. Seventhly, the court is guided by professional scales of charges … What is important is the broad average or general rate charged by persons of the relevant status and qualifications who carry out the relevant type of work." That approach was generally approved by Barrett J in Mohamed v Hurstville Tower Medical Clinic Pty Ltd (in liq) [2006] NSWSC 4 at [9], where his Honour also noted the observation of Branson J in Wenkart v Pantzer [2005] FCA 1572 that Young CJ in Eq may have expressed the first principle noted above too strongly and that it was "sufficient to note that it will rarely, if ever, be appropriate for the Court to review a decision of a taxing officer on a line by line basis". In Australian Securities & Investments Commission v Letten (No 23) [2014] FCA 985, Gordon J in turn observed a receiver's remuneration (and also costs and expenses) must be reasonable and properly incurred; the sum to be fixed by the Court may properly be calculated on the basis of time reasonably spent at specified rates, with a possible qualification for small administrations which is not presently applicable; the Court will initially ascertain whether a prima facie case is made out; the receiver must provide sufficient information for the Court to properly assess the claim; and the onus is on the receiver to justify that the tasks done were reasonable and prudent, including that work was done at an appropriate level of seniority and done efficiently. That approach was approved by the Full Court of the Federal Court in Templeton v Australian Securities and Investments Commission [2015] FCAFC 137 at [15]. The Court may also have regard to proportionality and factors of the kind specified in s 425(8) of the Corporations Act 2001 (Cth) in that regard: Templeton at [31]. That section, which was introduced by the Corporations Amendment (Insolvency) Act 2007, has the effect that, in determining the remuneration of a receiver appointed under an instrument, the Court must have regard to whether the remuneration is reasonable, taking into account all or any of specified matters. Those factors include the extent to which the work performed or likely to be performed by the receiver was reasonably necessary; the period during which the work was, or is likely to be, performed by the receiver; the quality and complexity of the work; whether the receiver was, or is likely to be, required to deal with extraordinary issues, or accept a higher level of risk or responsibility than is usually the case; the value and nature of any property dealt with, or likely to be dealt with, by the receiver; whether the receiver was, or is likely to be, required to deal with other insolvency practitioners; the number, attributes and behaviour, or the likely number, attributes and behaviour, of the company's creditors; and, if the remuneration is ascertained, in whole or in part, on a time basis, the time properly taken, or likely to be properly taken, by the receiver in performing the work; and whether the total remuneration payable to the receiver is capped. In Re Metal Storm Ltd [2015] NSWSC 1699 at [11], I noted that the relevant principles: "… include the fact that court appointed receivers are entitled to remuneration, and indeed their entitlement to remuneration is a necessary feature of the court's ability to appoint insolvency practitioners to such a position. … court appointed receivers are required to have their remuneration approved by the court before they are permitted to draw payment. There are many examples of cases where that has occurred including, for example, Re Application of Crouch [2005] NSWSC 1122 and Coeclerici Asia (Pte) Ltd v Gujarat NRE Coke Ltd (No 2) [2015] FCA 809."
2. In Re Anglican Development Fund Diocese of Bathurst Board (recs and mgrs apptd) [2017] NSWSC 967 at [12], I summarised the applicable principles as follows: "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]. … 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]. [Counsel] 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]. [Counsel] 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]. [Counsel] 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]."

The affidavit evidence

1. Mr Smith relies on his affidavit dated 22 September 2017, on which I have drawn for part of the chronology of events that appears above. Mr Smith's evidence is that he is a member of the Australian Restructuring Insolvency and Turnaround Association and observes the principles and standards of conduct prescribed by the ARITA Code of Professional Practice for Insolvency Practitioners, which include principles in respect of remuneration. Mr Smith also refers to the staff who have worked on the receivership and their respective experience.
2. Mr Smith refers (Smith 22.9.17 [20]ff) to the work undertaken in respect of the Company's property at Rocklea and to the fact that the valuation of that property is less than the amount owed by the Company to a secured lender on that property, Kiriwina Investments Pty Ltd, and expresses the view that there is no utility in his selling that property as there would be no sale proceeds available for distribution.
3. Mr Smith also refers to steps which he took in respect of the Company's Glenfield property, including initial negotiations with Mr Cannuli as to possible payment of creditors, which did not eventuate, and to steps taken after Mr Smith's appointment as receiver of that property to obtain a valuation of that property and to commence marketing that property from April 2017. That property was ultimately sold at auction, although settlement was delayed at the purchaser's request to mid-September 2017. The proceeds of sale, less the amount owed to the mortgagee of the property and costs, are now held by Mr Smith in a controlled monies account in his capacity as receiver of the property.
4. Mr Smith also refers to events that affected the sale of the property, including discussions with Mr Cannuli in January 2017 in respect of the possible interest of a purchaser in the property, and caveats initially lodged over the property by Armstrong Scalisi Holdings Pty Ltd ("ASH") and Euston One Pty Ltd ("Euston") which are entities are associated with Mr Sam Cassaniti who is also associated with Accolade. Those caveats relied on the terms of engagement for services allegedly provided by ASH to the Company and in the case of Euston's caveat, a document titled 'Deed of Loan', Mr Smith refers to the steps that he took to investigate the basis of those caveats. The caveats lodged by ASH and Euston were subsequently withdrawn, although there were delays arising from the form of those withdrawals, and from Land and Property Information's delay in processing those withdrawals until it had confirmed their status with Accolade. In the event, those caveats were ultimately removed in late April 2017.
5. Mr Smith refers to steps taken to sell and market the Glenfield property from late January 2017, and to steps which were then taken to resolve the position in respect of tenants including persons associated with Mr Cannuli who Mr Smith had discovered were living on that property. A further application was made to the Court in that respect, although that application was ultimately resolved by agreement with those tenants who vacated the property prior to settlement of its sale.
6. Mr Smith also refers to the further issues which then arose from the lodgement of a further caveat by Accolade in March 2017, claiming a different interest in the property from that previously claimed by ASH and Euston, in reliance on a deed of agreement dated 24 September 2015. Mr Cannuli then claimed, by statutory declaration, that he had not signed the deed of agreement or associated documents and that claim is presently the subject of ongoing proceedings in the Court. Mr Smith sets out the steps which were subsequently taken by him and his solicitors to investigate the validity of the deed of agreement and to his attempt to obtain documentation from Accolade to support its caveat. Mr Smith made a further interlocutory application to the Court for the removal of that caveat and Accolade in turn brought its own application in respect of that caveat. Mr Smith also refers to the engagement of a handwriting expert in order to review issues as to the authenticity of documents on which Accolade relies, given Mr Cannuli's denial that he had signed those documents. It is not necessary to address that matter further, where costs referable to that matter are disbursements which do not require the Court's approval in this application. A withdrawal of that caveat was subsequently provided prior to the settlement of the sale of the property.
7. Mr Smith also refers to the substantial recoveries made in the receivership, including the sale proceeds of the Glenfield property, interest payable by the purchaser in respect of the delayed settlement, and rent proceeds in respect of the Rocklea property which have been applied to payments due to the mortgagee of that property. Mr Smith in turn refers to the steps which have been taken to record chargeable time by his firm and to the practices which he and members of his staff have adopted in respect of time recording. Mr Smith leads evidence of the time recorded in respect of the receivership, sorted by activity, over the relevant period, and also sorted by employee over that period.
8. The total remuneration claimed by Mr Smith is $88,610.50 excluding GST and his total expenses (for which separate approval is not required, given the orders previously made by the Court) are $180,964.78 excluding GST. The substantial part of those expenses is comprised of legal fees, although agency fees, including commissioning and marketing costs, were also incurred in respect of the sale of the Glenfield property. Mr Smith contemplated that, following his discharge as receiver, he would continue to hold relevant funds in trust for the parties to the ongoing proceedings in which entitlement to those funds is in contest. I will ultimately not make an order discharging Mr Smith as receiver, although I will narrow the scope of his appointment as noted below.
9. By his further affidavit dated 13 October 2017, Mr Smith responded to Accolade's objections to his claim for remuneration and expenses although, as I noted above, no question as to expenses arises in this application.

Determination

1. I first address Mr Smith's claim for approval of his remuneration. Mr Martin pointed out that the remuneration claimed by Mr Smith related to his work on matters involving the caveat lodged by ASH, the caveat lodged by Accolade, the position in respect of other caveators, tenants at the Glenfield property to which I have referred above, dealings with the Glenfield property generally and the Rocklea property. I have referred to Mr Smith's evidence as to the work done in respect of those matters above.
2. Mr Martin submits, and I accept, that the work done by Mr Smith was within the scope of his appointment, which required that he realise the properties held by the Trust and that that required him to investigate the legitimacy of claims against the title of those properties and, where necessary, address issues as to their removal or recognition to allow a settlement of the sale of the Glenfield property. Mr Martin points out, and I also accept, that Mr Smith proceeded on that basis in investigating the several unregistered interests recorded on the title to the Glenfield property, taking steps to secure the withdrawal of the caveats lodged by ASH and Euston, dealing with tenants on the Glenfield property and addressing the subsequent caveat lodged by Accolade in a manner that ultimately permitted the completion of the sale of that property. Mr Martin also submits, and I accept, that unless Mr Smith had addressed the issues as to the title of the property, it would either have been sold for a significantly lower price, or, I would add, it may have been unsaleable.
3. As I noted above, Accolade's objections to Mr Smith's remuneration are no longer pressed given the agreement reached between Mr Smith and Accolade to which I referred above. I have nonetheless had regard to the various criticisms made by Accolade and Mr Smith's response to them to the extent that they are relevant to the question of Mr Smith's claim to remuneration. I do not consider that those criticisms are such as to deprive Mr Smith of any part of the remuneration claimed. First, the orders made by the Court contemplated that he had a responsibility for distribution of the sale proceeds of the properties to creditors, which necessarily contemplated that he should seek to form a view as to who was entitled to those sale proceeds and as to the validity of the claims made by Accolade. Second, Mr Smith could scarcely have disregarded a claim made by Mr Cannuli, on oath, that the documents on which Accolade relied were falsified, and seems to me to have properly taken that claim seriously and taken steps to investigate it. In the event, that claim will now be determined in proceedings between Accolade and the other parties interested in it, without the need for Mr Smith to take a continuing role in its resolution. I recognise that Accolade also advanced, although it did not press, criticisms of the steps taken by Mr Smith to explore the prospect that Mr Cannuli may pay out unsecured creditors and to pursue a possible sale to the purchaser for the Glenfield property introduced by Mr Cannuli. I recognise that neither came to pass, but it seems to me that, without hindsight, it cannot be said to have been unreasonable for Mr Smith to investigate those possibilities.
4. Mr Martin points out, and I accept, that the substantial part of the work done on the receivership was done by three people, Mr Smith and a manager and supervisor under his supervision, although several other staff provided assistance at lower rates. The amount of time spent by Mr Smith was less than the amount of time spent by either the manager or the supervisor, which would reduce total remuneration claimed, and the average hourly rate for which remuneration is claimed is less than half of Mr Smith's hourly rate. I am satisfied that work was properly distributed between members of Mr Smith's staff, in circumstances that the issues were of some complexity and there was therefore justification for the use of more senior staff in respect of them. Mr Martin also points out that the amount of time spent by Mr Smith and his staff, which totals about 30 work days over a 12 month period, does not seem to be disproportionate to the nature of the matters in issue. Mr Martin also points out, and I accept, that a comparison of the recoveries made to the remuneration claimed by Mr Smith does not indicate any disproportionality in the time spent against the value of the property recovered. Mr Martin submits, and I accept, that the Court can be satisfied that the amount of remuneration claimed is proportionate to the amounts recovered by Mr Smith; that the work which is the subject of the claim was performed at an appropriate level of seniority and that there is no evidence to suggest that it was excessive or unnecessary; and that the amount claimed is not inappropriately large for the amount of work that was done.
5. Mr Martin also addresses the receiver's claim for costs and expenses but, as I have noted above, the Court's specific approval of those costs and expenses is not required in this application.
6. Mr Smith also sought an order that he be discharged from his appointment as receiver by the Court. The Court can properly make such an order where a court-appointed receiver has completed the work for which he has been appointed. I recognise that Mr Smith has completed the sale of the Glenfield property and it seems to me that he has reasonably formed the view that there would be no useful purpose in the sale of the Rocklea property, which can be left to be dealt with by Cannuli Investments and the mortgagee of that property, subject to Mr Smith giving notice to them of that position. However, Mr Smith continues to hold substantial funds in a controlled monies account, and there are competing claims to those funds that are the subject of other proceedings in this Court. In those circumstances, it seems to me preferable that the Court should not terminate the receivership, but limit its scope so that Mr Smith will continue to hold those funds in the capacity of court-appointed receiver, and will be remunerated for the minimal work that is likely to be involved in doing so, until the determination of the Court proceedings as to the entitlement to those funds.
7. Accordingly, I make the following orders:
8. The Applicant's remuneration as court-appointed receiver is approved in an amount of not exceeding $88,610.50 plus GST.
9. The Applicant be discharged from his appointment as receiver of the Glenfield and Rocklea properties, but is to remain as receiver of monies held in a controlled monies account holding proceeds of sale of the Glenfield property ("Controlled Monies Account") until further order of the Court, his duties being limited to taking such steps as may be required in respect of that account pending the determination of a dispute as to the entitlement to the proceeds of that account.
10. Note that the Applicant and Accolade Advisory Pty Ltd have agreed that the total of the Applicant's remuneration approved by the Court up to and including 25 October 2017 together with costs, expenses and disbursements will not exceed $155,000 inclusive of GST.
11. Order that the Applicant be entitled to such remuneration as may be approved by the Court, or agreed between the Applicant and those persons ultimately held to be entitled to the proceeds of the Controlled Monies Account, in respect of the performance of his continuing duties as Applicant pursuant to paragraph 2 above.
12. Direct the Applicant to give notice of these orders to each of Cannuli Investments Pty Ltd, Kiriwina Investments Pty Ltd and Accolade Advisory Pty Ltd and reserve liberty to each of those entities to apply, within 14 days, if they seek to set aside or vary orders 2 or 4 above.

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. Decision last updated: 21 November 2017