Supreme Court New South Wales Medium Neutral Citation: In the matter Karim Pty Ltd [2021] NSWSC 141 Hearing dates: 22 February 2021 Date of orders: 24 February 2021 Decision date: 24 February 2021 Jurisdiction: Equity - Corporations List Before: Williams J Decision: Order that the remuneration of the plaintiffs, as liquidators of Karim Pty Limited (in liq), for the period 4 July 2020 and 27 November 2020 is determined to be $18,000 (plus GST); order that the plaintiffs be granted special leave to distribute the surplus assets of the Company. Catchwords: CORPORATIONS – winding up – application for approval of liquidators remuneration – Insolvency Practice Schedule (Corporations) s 60-10 – whether claim for remuneration reasonable – no issue of principle CORPORATIONS – winding up – distribution of surplus – Corporations Act 2001 (Cth) s 488(2) – grant of special leave to distribute surplus to contributories of the company Legislation Cited: Corporations Act 2001 (Cth), s 488 Corporations Regulations 2001 (Cth), reg 5.6.71 Insolvency Practice Schedule (Corporations), ss 60-5, 60-10 Supreme Court (Corporations) Rules 1999 (NSW), r 7.9 Cases Cited: In the matter of Fearndale Holdings Pty Ltd (admin apptd) (recs & mgrs apptd) [2020] NSWSC 901 In the matter of Karim Pty Limited (in liq) [2020] NSWSC 1678 Re Hawden Property Group Pty ltd (in liq) (2018) 125 ACSR 355 Re John L Norris Holdings Pty Ltd (in liq) [2013] NSWSC 2005 Re Octavia Administration Pty Ltd (in liq) [2020] NSWSC 927 Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr (2017) 93 NSWLR 459 Category: Principal judgment Parties: Vincent Joseph Pirina in his capacity as liquidator of Karim Pty Ltd (in liq) ACN 147 759 653 (First plaintiff) Steven Naidenov in his capacity as liquidator of Karim Pty Ltd (in liq) ACN 147 759 653 (Second plaintiff) Edgar Francis (First defendant) Kevin Nol (Second defendant) Representation: Counsel: Mr D Turner (Solicitor) (Plaintiffs) Solicitors: Assured Legal Solutions (Plaintiffs) File Number(s): 2020/239758 Publication restriction: N/A Judgment INTRODUCTION 1. On 18 March 2019, the Court made orders for the winding up of Karim Pty Ltd (ACN 147 759 653) (the Company) and appointing Mr Vincent Pirina and Mr Steven Naidenov, registered liquidators, as liquidators of the Company (the Liquidators). 2. The Company has two members (Mr Edgar Francis and Mr Kevin Nol), each of whom holds 50 per cent of the shares in the Company. 3. By Interlocutory Process filed on 15 February 2021 the Liquidators seek: 1. order pursuant to s 60-10 of the Insolvency Practice Schedule in Schedule 2 to the Corporations Act 2001 (Cth) that the Liquidators' remuneration in respect of work carried out in relation to the winding up of the Company between 4 July 2020 and 27 November 2020 in relation to the winding up of the Company be fixed in the amount of $18,00 plus GST; 2. an order pursuant to s 488(2) of the Corporations Act that the Liquidators be granted special leave to distribute the surplus assets of the Company to the contributories of the Company; 3. an order dispensing with the requirements of rr 7.9(2) and (3) of the Supreme Court (Corporations) Rules 1999 (NSW) that the Liquidators publish a notice in accordance with Form 15; and 4. an order that the costs of the Interlocutory Process be costs in the winding up of the Company. 1. At the hearing of the Interlocutory Process on 22 February 2021, the Liquidators read the affidavit of Mr Pirina sworn on 15 February 2021 and tendered the documents exhibited to that affidavit. The Liquidators also tendered an email from the Australian Securities and Investments Commission (ASIC) dated 17 February 2021 confirming that ASIC had received the Interlocutory Process and supporting affidavit of Mr Pirina, and stating that ASIC considers that the application is a matter properly left for the determination of the Court and that ASIC does not propose to seek leave to appear at the hearing of the application. LIQUIDATOR'S REMUNERATION Legislation and legal principles 1. Pursuant to s 60-5 of the Insolvency Practice Schedule in Schedule 2 of the Corporations Act (the IPS), the Liquidator is entitled to receive remuneration for necessary work properly performed in the external administration of the Company in accordance with remuneration determinations made under s 60-10 by resolution of the creditors or a committee of inspection (if any) or made by the Court. 2. As Rees J said in Re Octavia Administration Pty Ltd (in liq) [2020] NSWSC 927 at [49]: "49. The principles which govern determination of a liquidator's remuneration are well summarised In the matter of Prime Space Property Investment Limited (in liquidation) [2016] NSWSC 1821 at [29]-[33] per Black J; In the matter of Sakr Nominees Pty Ltd (2017) 93 NSWLR 459; (2017) 118 ACSR 333; [2017] NSWCA 38 per Bathurst CJ at [54]-[60] (with whom Beazley P, Gleeson JA and Beach AJA agreed) and Barrett JA at [71]; and In the matter of Plutus Payroll Australia Pty Ltd (in liquidation) [2018] NSWSC 1092 at [14]-[15] per Black J. In short: (a) A liquidator is entitled to reasonable remuneration for their services and bears the onus of establishing that the remuneration sought is fair and reasonable. (b) The liquidator must lead evidence in sufficient detail to enable the Court to determine that question including an itemised account setting out the details of work, the persons who did the work, the time taken to perform the work and the remuneration and expenses incurred. (c) The Court must bring an independent mind to bear on the question whether the remuneration is fair and reasonable. (d) Relevant considerations include the complexity of the liquidation and the level of responsibility and risk taken on by the liquidator. (e) The time-costing based approach to remuneration as well as the percentage-based approach – which compares the percentage that a liquidator's remuneration bears to the level of asset realisations achieved – are commonly used, and no particular approach is to be preferred. (f) There is a need for proportionality between the cost of the work done and the value of the services provided. Some work by a liquidator may not generate a return to creditors but is nonetheless necessary." 1. The proportionality of the work done compared to the size of the Company's assets is an important consideration in determining reasonableness. The work done must be proportionate to the difficulty and importance of the task in the context in which it needed to be performed. The percentage that the total remuneration constitutes of the value of assets realised by the Liquidator therefore provides a measure of objective testing of the reasonableness of the remuneration claimed. However, the Court does not focus on proportionality in this sense alone in determining the reasonableness or otherwise of the remuneration. It is still necessary to consider the work actually done and whether the amount charged for it was proportionate to the difficulty and complexity of the tasks performed: Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr (2017) 93 NSWLR 459; [2017] NSWCA 38 at [54]-[60] (Bathurst CJ, with the concurrence of the other members of the Court of Appeal); In the matter of Fearndale Holdings Pty Ltd (admin apptd) (recs & mgrs apptd) [2020] NSWSC 901 at [32]-[38]. As Black J said in the last mentioned case (at [38], citations omitted): "It is not the Court's role, as constituted by a judge in an application of this kind, to undertake a line by line review of the relevant narratives in an insolvency practitioner's billing record, but the Court will generally review the relevant narratives in a broad way in order to satisfy itself that they support the other evidence led in respect of the claimed remuneration." Consideration and determination 1. As I have referred to above, the period in respect of which the Liquidators now seek to have their remuneration determined by the Court is from 4 July 2020 to 27 November 2020 (the Relevant Period). 2. The Liquidators remuneration for the period from the date of their appointment to 7 June 2019 was approved by creditors of the Company. On 20 November 2020, the Court made orders fixing their remuneration for the period 8 June 2019 to 3 July 2020 in the amount $76,491 (exclusive of GST): In the matter of Karim Pty Limited (in liq) [2020] NSWSC 1678. On that occasion, as on this occasion, a determination of the Court was required because all creditors of the Company had been paid in full. 3. In his affidavit sworn on 15 February 2021, Mr Pirina deposed that the Liquidators and their staff have completed the following tasks in relation to the liquidation of the Company in the period since 4 July 2020: 1. preparing a fourth report to creditors and responding to queries from creditors arising from the report; 2. corresponding with the Australian Tax Office in relation to the Company's capital gains tax liabilities as well as in relation to allegations of fraud made during the course of a public examination of the Company's external accountant; 3. distributing a final dividend to creditors with an outcome of all creditors having been paid in full; 4. lodging the Company's business activity statements; 5. complying with a subpoena issued to the Company in separate proceedings between the Company's directors; 6. instructing the Plaintiff's solicitors in relation to the earlier remuneration application in these proceedings, referred to above; and 7. lodging documents and prescribed forms with ASIC. 1. The exhibits to Mr Pirina's affidavit include an itemised spreadsheet of the steps taken in relation to all of those tasks, the remuneration for each step applying the hourly rates of the Liquidators' firm to the time taken for each task. I was informed that those hourly rates are the same as the rates that Gleeson JA considered to be reasonable and commercially competitive in his reasons for judgment delivered on 26 November 2020: [2020] NSWSC 1678 at [18]. I respectfully agree with his Honour's opinion. 2. I have reviewed the itemised spreadsheet in a broad way and I am satisfied that the narratives contained therein support Mr Pirina's evidence referred to at [10] above as to the work performed for which remuneration is claimed. 3. I am also satisfied that the Liquidators have provided sufficient information for the Court to properly assess the claim for remuneration. Having considered the matters in s 60-12 of the Insolvency Practice Schedule and applied the principles summarised at [6] above, I am satisfied that the work was performed properly in the course of the winding up of the Company, that it was reasonable to carry out that work, and that the remuneration claimed by the Liquidators for the Relevant Period is a fair and reasonable reward for the work. 4. The itemised spreadsheet establishes that the work was carried out by persons with the appropriate level of seniority with hourly rates proportionate to their level of experience. The bulk of the work was done by senior staff of the Liquidators' firm with 3-4 years' experience or supervisors with 4-6 years' experience. The average charge out rate for the Relevant Period was $388 per hour. 5. I accept that time-based charging is an appropriate method of charging in the circumstances of this case. 6. The Liquidators' total remuneration calculated on the basis of the itemised schedule would amount to $26,196. However, the Liquidators ask the Court to fix their remuneration in the discounted sum of $18,000 (plus GST) and they do not intend to seek any approval for remuneration in respect of tasks undertaken after 27 November 2020. 7. Having regard to the proportionality considerations referred to by Gleeson JA in this matter on 26 November 2020, [1] I do not consider that the addition of the relatively modest discounted remuneration of $18,000 to the $50,000 previously approved by creditors and the $76,491 previously approved by the Court would render the total remuneration disproportionate to the difficulty and importance of the work and the context in which it needed to be performed in order to bring the winding up to a conclusion and proceed towards distributing the surplus to contributories, subject to the Court granting leave to do so. SPECIAL LEAVE TO DISTRIBUTE SURPLUS Legislation and legal principles 1. I now turn to the Liquidator's application under s 488(2) of the Corporations Act for special leave to distribute the surplus to the contributories. 2. The purpose of requiring the Court's special leave to distribute the surplus is largely concerned with ensuring that there is, in fact, a surplus to be distributed, that proper steps have been taken to ensure that those who might have a claim on it have been notified, and that the correct relativities between contributories have been observed. The liquidator is expected to demonstrate these matters to assist the Court in determining whether it is appropriate in all the circumstances for the distribution to be made: see, for example, Re John L Norris Holdings Pty Ltd (in liq) [2013] NSWSC 2005 at [3] (Brereton J, as his Honour then was); Re Hawden Property Group Pty ltd (in liq) (2018) 125 ACSR 355; [2018] NSWSC 481 (Gleeson JA) at [57]. 3. In relation to the notification steps referred to above, r 7.9 of the Corporations Rules provides that: 1. the affidavit in support of the application must state how the liquidator intends to distribute the surplus (r 7.9(1)); and 2. notice of application in the form of Form 15 must be published in a newspaper circulating in NSW at least 14 days before the date fixed for hearing of application (r 7.9(2) and (3)). Consideration and determination 1. In his affidavit sworn on 15 February 2021, Mr Pirina deposed that all of the Company's creditors have been paid in full. Indeed, this had occurred prior to the previous remuneration application heard by Gleeson JA, as recorded in his Honour's judgment: [2020] NSWSC 1678 at [2]. 2. Mr Pirina further deposed that the Company currently holds surplus assets of $49,695.52, and expects to receive additional funds of $11,210 for refunds in respect of the Company's business activity statements for the quarters ending December 2020 and March 2021. 3. For the reasons already explained above, an order will be made approving the Liquidators' remuneration in the sum of $18,000 plus GST. I am also satisfied that it is appropriate to make the order sought by the Liquidator that the costs of the Interlocutory Process be costs in the winding up. 4. Calculations set out in paragraph 13 of Mr Pirina's affidavit show that, after deduction of the Liquidators' remuneration of $18,000 plus GST and the costs of this Interlocutory Application (in the sum of $5,924), the Company's present surplus is $23,971.52 but this will increase to $35,181.52 if the expected tax refunds referred to are received. 5. The evidence does not reveal any person who may have a claim on the surplus, other than the two contributories to whom the surplus is proposed to be paid, each of whom holds 50 per cent of the shares in the Company. 6. Paragraph 14 of Mr Pirina's affidavit and the draft Form 551 exhibited to his affidavit state that the Liquidators intend to distribute the surplus equally between the two contributories. On the basis of a total surplus of $35,181.52 calculated in the manner set out above, the draft Form 551 records that each contributory will receive $17,590.76. However, the amount may vary if the expected tax refunds to which I have referred above are not received for any reason. If no tax refunds are received, the amount of the surplus distributed to each contributory will be $11,985.76. 7. Regulation 5.6.71 of the Corporations Regulations 2001 (Cth) provides that an order made by the Court authorising a liquidator to distribute any surplus must have annexed to it a schedule in accordance with Form 551, unless the Court directs otherwise. In my opinion, it is appropriate to make such a direction in this case, which is a simple one with only two contributories with equal shareholders: see Re Hawden Property Group Pty Ltd (in liq), supra at [63] (Gleeson JA); Warner (liquidator), in the matter of Sakr Bros Pty Ltd (in liq) [2019] FCA 547 at [26] (Griffiths J). 8. On the basis of the evidence summarised above, I am satisfied that there is, in fact, a surplus to be distributed and that the two contributories are the persons entitled to receive the surplus. 9. The Liquidators did not publish a Form 15 notice of the application for special leave to distribute the surplus 14 days before the date fixed for hearing of application under s 488(2) in accordance with r 7.9(2) and (3) of the Corporations Rules. 10. In my view, it is appropriate to exercise the power under r 1.3 of the Corporations Rules to dispense with compliance with the publication requirement in the circumstances of this case where all unsecured creditors have been paid in full, the surplus is to be distributed to the two contributories in proportion to their shareholdings and notice of the application has been given to ASIC: see, for example, Re Hawden Property Group Pty Ltd (in liq), supra, at [60]; Warner (liquidator), in the matter of Sakr Bros Pty Ltd (in liq), supra, at [25]. CONCLUSION AND ORDERS 1. For the reasons above, I make the following orders: 1. Order that the remuneration of the plaintiffs as liquidators of Karim Pty Limited ACN 147 759 653 (in liq) (the Company) for the period 4 July 2020 and 27 November 2020 is determined to be $18,000 (plus GST). 2. Order pursuant to section 488(2) of the Corporations Act 2001 (Cth) that the plaintiffs be granted special leave to distribute the surplus assets of the Company to the contributories of the Company in equal proportions. 3. Order pursuant to regulation 5.6.71 of the Corporations Regulations 2001 (Cth) dispensing with the requirement for a schedule in the form of Form 551 to be annexed to these orders. 4. Order that the requirements of rules 7.9(2) and (3) of the Supreme Court (Corporations) Rules 1999 (NSW) be dispensed with. 5. Order that the Costs of the Interlocutory Process filed on 15 February 2021 be costs in the winding up of the Company. ********** Endnote 1. [2020] NSWSC 1678 at [19]. 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: 24 February 2021