Solicitors:
Bridge Lawyers - for the plaintiffs
File Number(s): 2014/376267
[2]
Judgment
This is an application under Section 511 of the Corporations Act 2001 (Cth) by a liquidator in a members' voluntary winding-up. There are ten members' voluntary windings up of related companies.
The underlying facts are very odd. The companies became involved in a set of schemes of arrangement which were approved in the Federal Court and as a result of which, the then shareholders became entitled to moneys from the administrators of the scheme. That scheme distribution was in both shares and cash.
For some reason, $10.9 million of the cash entitlements where cheques were sent out to the persons entitled, those cheques have never been cashed. These cheques were sent out in 2007, so there has been plenty of time for them to be presented and one must assume that they are not going to be presented, although, many of the cheques were for amounts less than $100 and it may be that wealthy investors just could not be bothered presenting them, there were also many for four figures. Additionally, dividends have been paid to shareholders of approximately $900,000, which again, the cheques have not been presented.
The liquidator wants directions as to what he should do about the matter because there are, at least, four possible positions he could take.
First, he could pay the moneys to ASIC under Section 544 of the Corporations Act. Secondly, it is possible and, indeed, the liquidator has received some commercial advice to this effect, that Section 414(15) of the Corporations Act applies and that, again, the money should be paid to ASIC but, in that case, under some sort of trust.
Thirdly, the Unclaimed Moneys Act 1995 (NSW), or its equivalent, or, fourthly, its equivalent in Western Australia may require the liquidator to pay the moneys to a state fund.
When dealing with an application under Section 511, in the same way as one deals with an application under Section 63 of the Trustee Act 1925 (NSW), the Court does not, at least, in the ordinary case, decide the matter. What the court does is to require the liquidator or trustee to obtain advice from competent counsel in the area. The Court then considers counsel's advice and, unless the Court can see that further material is required, or that there is a real problem with counsel's advice, the usual course that the Court takes is to advise the liquidator, or direct the liquidator that he or she would be justified in acting on counsel's advice.
Without imprimatur of the Court, the liquidator or trustee takes some risk in acting on counsel's advice. Merely because one takes counsel's advice does not necessarily mean that one has acted reasonably.
In the instant case, counsel has advised that the appropriate course is Section 544(1). That section says that:
Where a liquidator of a company has in his or her hands an amount being a dividend or other money that has remained unclaimed for more than six months that he or she must forthwith pay that money to ASIC to be dealt with under Part 9.7 of the Corporations Act.
The money has been held for more than six months, but it seems to me that, under Section 544(1), the six months is not a time of the essence provision. It is merely a directory provision as to what should happen. It is quite appropriate for liquidators to delay if there is a good reason for doing so and one good reason would be to make as many enquiries as is prudent in order to see that the money might go to its proper designation before troubling ASIC with having to hold it and manage applications for payment out.
It seems to me in the instant case that the amount is so large that it would be prudent, before the money is paid over, for an advertisement to be placed in a newspaper circulating throughout Australia and The Australian is suggested and, also, because it would seem the bulk of the persons affected reside in WA, in The West Australian.
Accordingly, I direct the liquidator that he would be justified in paying the moneys outstanding from the scheme of arrangement and the unclaimed dividends to ASIC pursuant to s. 544 of the Corporations Act, after one month from an advertisement, to be settled by counsel, advising potential claimants that the liquidator would do so one month after the publication of the advertisement and that any claim to the moneys after that one month would need to be made to ASIC.
Those advertisements, of course, will cost some money, though, compared with the $11.8 million involved, of relatively minor significance. However, some direction should be made as to how the costs of the advertisements should be borne.
It would seem that, although the scheme moneys have been accumulating now for some eight years, any interest under the scheme would not be paid to the persons who have received these uncashed cheques, but would go to various companies in the group. I would direct the liquidator that he would be justified in paying for the advertisement out of the interest that has accrued from the unclaimed cheques.
The final question I have to determine is whether I should approve additional remuneration for the liquidator.
The companies were put into members' voluntary winding up and the liquidator was appointed and his remuneration approved by a resolution of a meeting of which a single member represented the shareholders.
The liquidator's affidavit in these proceedings shows that with some of the ten companies his remuneration was fixed at $3,800 with another one $3,000 and another $15,000 and the remaining three $100,000 each, a total of $336,200.
The liquidator says, and there is material to support this, that he has, using time costing and taking into account disbursements, incurred $611,948 in costs and he anticipates another $560,796. Thus, taking into account the $336,200 already approved he seeks approval for a further $836,544.
Of the ten companies, only four have sufficient funds to meet the liquidator's costs and so he seeks an order that the companies that can afford it bear the liquidator's costs which will exonerate the other six.
The companies are in a situation where there is a very complex web of companies. However, it would seem that when the whole of the liquidations are washed up there will be about $26 million flowing through them.
If one were to look at each company individually, all sorts of awkward questions would arise and it would cost a lot of money, both in liquidator's time, executives' time and Court process, to solve each problem according to law.
I mention this because there are four problems in this application and what I have just said relates to the fourth of these.
The four problems are:
1. What is the Court's power in a members' voluntary winding up to increase the liquidator's remuneration?
2. What is the significance of the fact that the remuneration was approved when the liquidator was appointed, presumably with his consent?
3. Is the amount sought by the liquidator reasonable?
4. Should the Court approve one company being directed to pay the whole of the remuneration.
I will deal with each of these in turn briefly:
1. The Court under Section 511 has power to determine any question arising in the winding up of a company. In Re: Walker [2005] NSWSC 557; 189 FLR 467, Barrett J considered that this sort of application came within Section 511, though he cast doubt as to whether it came within 511(1b). That was really of no impediment as it comes within 511(1a) so, in my view, I should follow that decision and hold there is power to do what the liquidator wants.
2. Normally when a person makes a contract he or she is bound by the contract. However, Section 504 of the Corporations Act 2001 gives the Court power, on the application inter alia of a liquidator, to review that remuneration. Section 504(2) lists a series of factors which the Court must have regard to as to whether the remuneration is reasonable. That statutory power makes it clear that the Court can vary the liquidator's remuneration if the factors in Section 504(2) mandate it, notwithstanding that there is a contract.
3. The next question is whether what the liquidator claims is reasonable. It is quite clear that the liquidator of the ten companies was involved in a very complicated exercise. He surely must have anticipated this when he was appointed but perhaps he did not anticipate the great complexity that there was. He says that a number of the tasks were completely unexpected. In addition to the unclaimed funds matter, which I have dealt with earlier, he has had to deal with personal injury claims, trademark claims, response to subpoenas, determination of taxation liabilities, and he has got to store 3,500 boxes of the companies' books and 3,500 magnetic storage tapes for seven years and the cost of storage is very expensive.
My problem is that since I ceased sitting regularly in Equity in 2009 I have lost my feel for the market in approving liquidator's remunerations. Most of this work is at the basic level dealt with by the Registrar. It is difficult for a Judge in an application where there is no contradictor to be satisfied that remuneration is reasonable.
One way of dealing with the situation is to ask for an expert, that is another experienced insolvency practitioner, to look at the figures and to certify that they are or are not reasonable. That, however, is a costly exercise with these experts charging $490 an hour and it does not take long, with a complicated set of figures, to amass a considerable bill.
The alternative is that I should ask the Registrar for a report as to her opinion of the reasonableness. In this I don't want her to write a hundred page judgment but merely to peruse what is in Mr Knowles' submissions, particularly page 10, and report whether she considers that the amount claimed is at least, if I can use the phrase, "within the ballpark" of what is reasonable according to the practice that she uses when fixing remuneration of liquidators.
Subject to the Registrar's report, I think that it is appropriate for me to certify that the remuneration sought is reasonable. If the Registrar has concerns, well then she may directly inform the solicitors for the applicants of her concerns so that they can meet it. If she is prepared to report that the claim is reasonable, well then I will accept it.
1. The fourth matter is should one company be directed to pay the whole lot of the remuneration. It seems to me that the answer to this is 'yes'.
First of all, it appears that the work done in the ten companies overlap so that what has to be done in one liquidation cannot be considered separate and apart from the whole overall effect on the ten companies and their shareholders.
Secondly, the Court is always taking a pragmatic view when there can be no prejudice or, alternatively, where there is no alternative but to take a pragmatic view in dealing with the liquidation of groups of companies.
Mr Knowles of counsel, to whom I am indebted for his presentation in these matters reminded me what I said in Re: Charter Travel Co Ltd (1997) 25 ACSR 337 that hopefully the day will come when the legislature will realise the problems that there are in the liquidations of groups of companies, and I mentioned in Charter Travel the problems with the Maxwell group, then the BCCI Group. Unfortunately, despite what I said in 1997, it does not appear that the legislation has caught up and, accordingly, it is still necessary for courts to make orders which, in the words of Section 511, 'are just and beneficial' to the voluntary winding up.
There have been a number of pooling cases, and I will endeavour in the revised version of this judgment to note a couple of them, where courts have said that the only sensible solution to save costs and to benefit the members or creditors generally, as the case may be, is to allow there to be pooling or, alternatively, for one company in the group to bear the costs of the whole lot.
In the instant case, the persons who are ultimately affected by the liquidator's remuneration being increased raise no objection to it.
It seems to me, in these circumstances, I should under Section 511 authorise that the adjusted remuneration of the liquidator may be paid out of the assets of only one company in the group rather than each company paying out the remuneration which it is liable to pay out of its own assets.
Again, this aspect should be dealt with in the short minutes of order to be brought in by counsel so that I will make those orders, refer the matter to the Registrar for report and that if the Registrar's report is that the remuneration is reasonable then the order may be taken out without further reference to me.
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ORDERS
I make the following orders:
1. The plaintiffs have leave to file in the Registry by 4pm on 29 May 2015 an amended originating process in the form handed up to Court on 27 May 2015.
2. Pursuant to Section 511 of the Corporations Act 2001 (Act), direct that the first plaintiff would be justified in:
1. paying (or directing Link Market Services Limited and/or its subsidiary Pacific Custodians Pty Limited (collectively, 'the Custodian') to pay) the amount of approximately $10,900,000.00 being held by the Custodian on behalf of the Second Plaintiff ('Unclaimed Scheme Consideration') to the Australian Securities and Investment Commission ('ASIC') under Section 544(1) of the Act;
2. paying the amount of approximately $200,000 (or part thereof) being held by the Custodian ('the Additional Unclaimed Money') to ASIC under Section 544(1) of the Act;
3. paying the amount of approximately $974,117.84 being held by the third and fourth plaintiffs (the 'Unclaimed Dividends') to ASIC under Section 544(1) of the Act;
one month after the placement by the first plaintiff of an advertisement in the Australian newspaper and the West Australian newspaper stating that the Unclaimed Scheme Consideration, the Additional Unclaimed Money and the Unclaimed Dividends will be remitted to ASIC, the wording of such advertisement to be settled by Counsel for the plaintiffs.
The costs and expenses incurred by the first plaintiff in placing the advertisement in accordance with order 2 is to be paid from the interest earned by the second plaintiff on the Unclaimed Scheme Consideration.
Subject to orders 6-10 below, pursuant to Section 504 of the Act:
1. the first plaintiff's remuneration for acting as liquidator of the second plaintiff during the period 28 June 2012 to 30 November 2014 in the amount of $41,862 plus GST, as detailed in the affidavit of Ian James Purchas sworn 19 December 2014, is approved;
2. the first plaintiff's future remuneration for acting as liquidator of the second plaintiff from 1 December 2014, as detailed in the affidavit of Ian James Purchas sworn 19 December 2014 is approved limited to $50,000 plus GST;
3. the first plaintiff's remuneration for acting as liquidator of the third plaintiff during the period 28 February 2011 to 30 November 2014 in the amount of $39,717 plus GST, as detailed in the affidavit of Ian James Purchas sworn 19 December 2014 is approved;
4. the first plaintiff's future remuneration for acting as liquidator of the third plaintiff from 1 December 2014, as detailed in the affidavit of Ian James Purchas sworn 19 December 2014, is approved limited to $30,000 plus GST;
5. the first plaintiff's remuneration for acting as liquidator of the fourth plaintiff during the period 28 June 2012 to 30 November 2014 in the amount of $42,967 plus GST, as detailed in the affidavit of Ian James Purchas sworn 19 December 2014, is approved;
6. the first plaintiff's future remuneration for acting as liquidator of the fourth plaintiff from 1 December 2014, as detailed in the affidavit of Ian James Purchas sworn 19 December 2014, is approved limited to $40,000 plus GST;
7. the first plaintiff's remuneration for acting as liquidator of the fifth plaintiff during the period 28 June 2012 to 30 November 2014 in the amount of $50,988 plus GST, as detailed in the affidavit of Ian James Purchas sworn 19 December 2014, is approved;
8. the first plaintiff's future remuneration for acting as liquidator of the fifth plaintiff from 1 December 2014, as detailed in the affidavit of Ian James Purchas sworn 19 December 2014, is approved limited to $50,000 plus GST;
9. the first plaintiff's remuneration for acting as liquidator of the sixth plaintiff during the period 28 June 2012 to 30 November 2014 in the amount of $27,946 plus GST, as detailed in the affidavit of Ian James Purchas sworn 19 December 2014, is approved;
10. the first plaintiff's future remuneration for acting as liquidator of the sixth plaintiff from 1 December 2014, as detailed in the affidavit of Ian James Purchas sworn 19 December 2014, is approved limited to $40,000 plus GST;
11. the first plaintiff's remuneration for acting as liquidator of the seventh plaintiff during the period 1 July 2013 to 30 November 2014 in the amount of $47,461 plus GST, as detailed in the affidavit of Ian James Purchas sworn 19 December 2014, is approved;
12. the first plaintiff's future remuneration for acting as liquidator of the seventh plaintiff from 1 December 2014, as detailed in the affidavit of Ian James Purchas sworn 19 December 2014, is approved limited to $50,000 plus GST;
13. the first plaintiff's remuneration for acting as liquidator of the eighth plaintiff during the period 1 July 2013 to 30 November 2014 in the amount of $41,615 plus GST, as detailed in the affidavit of Ian James Purchas sworn 19 December 2014, is approved;
14. the first plaintiff's future remuneration for acting as liquidator of the eighth plaintiff from 1 December 2014, as detailed in the affidavit of Ian James Purchas sworn 19 December 2014, is approved limited to $100,000 plus GST;
15. the first plaintiff's future remuneration for acting as liquidator of the ninth plaintiff from 1 December 2014, as detailed in the affidavit of Ian James Purchas sworn 19 December 2014, is approved limited to $85,501 plus GST;
16. the first plaintiff's future remuneration for acting as liquidator of the tenth plaintiff from 1 December 2014, as detailed in the affidavit of Ian James Purchas sworn 19 December 2014, is approved limited to $85,295 plus GST;
17. the first plaintiff's remuneration for acting as liquidator of the eleventh plaintiff during the period 28 February 2011 to 30 November 2014 in the amount of $33,987 plus GST, as detailed in the affidavit of Ian James Purchas sworn 19 December 2014, is approved; and
18. the first plaintiff's future remuneration for acting as liquidator of the eleventh plaintiff from 1 December 2014, as detailed in the affidavit of Ian James Purchas sworn 19 December 2014, is approved limited to $30,000 plus GST.
Direct that the first plaintiff would be justified in claiming reimbursement from the eighth plaintiff for all of the approved remuneration, costs and expenses incurred by him in acting as liquidator of the third, fifth, sixth, ninth, tenth and eleventh plaintiffs.
The Registrar of the Corporations List (the 'Registrar) is to peruse the court file to determine whether the remuneration claimed by the first plaintiff in relation to his work as liquidator of the second to eleventh Plaintiffs is reasonable.
If the Registrar is satisfied that the remuneration claimed by the first plaintiff in relation to his work as liquidator of the second to eleventh plaintiffs is reasonable, the Registrar is to advise the solicitors for the plaintiffs of his/her satisfaction and order 4 will take effect immediately and without the need for the proceedings to be referred to a Judge of the Court.
If the Registrar has any query or concerns as to the reasonableness of the remuneration claimed by the first plaintiff, the Registrar is to inform the solicitors for the plaintiffs regarding such matters directly and the solicitors for the plaintiff will have 14 days to provide any response to the Registrar.
If, upon consideration of any response received from the solicitors for the plaintiffs, the Registrar is satisfied that the remuneration claimed by the first plaintiff in relation to his work as liquidator of the second to eleventh plaintiffs is reasonable, the Registrar is to advise the solicitors for the plaintiffs of his/her satisfaction order 4 will take effect immediately and without the need for the matter to be referred to a Judge of the Court.
If, upon consideration of any response received from the solicitors for the plaintiff, the Registrar is not satisfied that that the remuneration claimed by the first plaintiff in relation to his work as liquidator of the second to eleventh plaintiffs is reasonable:
1. the Registrar is to inform the solicitor for the plaintiffs of his/her non-satisfaction and provide brief reasons for that position; and
2. the matter is to be relisted before a Judge of the Court for further directions.
Pursuant to Section 511 of the Act, direct that the first plaintiff would be justified in claiming reimbursement for the costs of and incidental to these proceedings from the eighth plaintiff.
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Decision last updated: 01 June 2015