Supreme Court New South Wales Medium Neutral Citation: In the matter of M & J Super Fund Pty Limited (in liquidation) [2021] NSWSC 279 Hearing dates: 15 March 2021 Date of orders: 24 March 2021 Decision date: 24 March 2021 Jurisdiction: Equity - Corporations List Before: Williams J Decision: Order that the remuneration of the Applicant for the period from 3 April 2019 to 27 January 2021 in his capacity as the receiver and manager of the Fund be fixed in the sum of $96,558.50 (exclusive of GST) and in his capacity as liquidator of the Company be fixed in the sum of $3,278.00 (exclusive of GST); order that the remuneration and the Applicant's reasonable costs of the interlocutory process be paid out of the assets of the Fund. Catchwords: CORPORATIONS — Winding up — where entity in liquidation/receivership is a corporate trustee – remuneration of liquidator — remuneration of receiver and manager – reasonableness of remuneration – whether applicant as liquidator/ receiver has established entitlement to and reasonableness of remuneration – remuneration and costs to be paid out of the assets of the trust to which the applicant has been appointed Legislation Cited: Corporations Act 2001 (Cth), ss 477, 506 Uniform Civil Procedure Rules 2005 (NSW), r 26.4 Insolvency Practice Schedule (Corporations), ss 60-5, 60-10 Cases Cited: Re Substar Holdings Pty Ltd (in liq) [2020] FCA 1863 Re Glenvine Pty Ltd (in liq) [2020] NSWSC 866 Re IMF Global Australia Ltd (in liq) (No. 2) [2012] NSWSC 1426 Re North Food Catering Pty Ltd [2014] NSWSC 77 Re Houben Marine Pty Ltd (in liq) [2018] NSWSC 745 Re JML Property Services Pty ltd (in liq) [2018] NSWSC 1069 Re BBY (receivers and managers appointed) (in liq) (No. 3) [2018] NSWSC 1718 Re Abderdeen All Farm Pty Ltd (in liq) [2020] NSWSC 770 Re Say Enterprises Pty Ltd [2018] NSWSC 396 Re M & J Super Fund Pty Ltd (in liq), unreported, 10 October 2018, Supreme Court of New South Wales Category: Principal judgment Parties: M & J Super Fund Pty Limited (in liquidation) ACN 125 938 865 (First Plaintiff) Dermott Joseph McVeigh (Second Plaintiff/Applicant) Representation: Counsel: Mr D Krochmalik (Applicant) Solicitors: HWL Ebsworth Lawyers (Applicant) File Number(s): 2018/00293390 Publication restriction: N/A Judgment Introduction 1. Mr Dermott McVeigh, chartered account and registered liquidator, is the liquidator of M & J Super Fund Pty Limited (in liq) and the receiver and manager of the assets of the Berry Superannuation Fund. It is convenient to refer to Mr McVeigh as the Applicant, to M & J Super Fund Pty Limited as the Company and to Berry Superannuation Fund as the Fund. 2. The Company was registered on 13 June 2007 with the sole purpose of acting as a corporate trustee of the Fund, which is a self-managed superannuation fund governed by a Superannuation Trust Deed dated 15 May 1992 (the Trust Deed). The Company was appointed as trustee of the Fund on or about 29 June 2007 and has conducted no business other than as trustee of the Fund. It did not trade or hold any assets in its own right. The directors of the Company (Mark Berry, Jennifer Berry and Neil Berry) (Directors) are also the beneficiaries of the Fund. 3. The assets held by the Company as trustee of the Fund include all of the ordinary units in the Berry Investment Trust (BIT). The trustee of BIT acquired three properties using money borrowed from the Berry Family Trust (BFT). The profit generated by BIT, derived at least in part from those properties, was then distributed to the Company as trustee for the Fund. 4. The Australian Tax Office (ATO) conducted an audit of the Fund in respect of the 2012 to 2016 financial years. The Company was wound up on 6 August 2018 and the Applicant was appointed as its liquidator. The ATO has lodged a proof of debt for approximately $2.5 million, which represents more than 99.5% of the claims of all creditors in the winding up. 5. Clause 6.3.2 of the Trust Deed provides, relevantly, that the office of trustee becomes vacant if the trustee, being a company, is wound up. No new trustee has been appointed subsequent to the Company going into liquidation. Accordingly, the Company assumed the position of bare trustee of the Fund on 6 August 2018 and remains in that position, with its powers limited to protecting the assets of the Fund: Re Substar Holdings Pty Ltd (in liq) [2020] FCA 1863 at [26]-[27] and the authorities there referred to. 6. On 8 October 2018, orders were made in this proceeding appointing the Applicant as the receiver and manager (without security) of the property, assets and undertaking of the Fund and granting him all the powers that a liquidator has in respect of the property of a company under ss 477(2) and 506(1) of the Corporations Act 2001 (Cth). The purpose of the order was to facilitate the enforcement of the right of the Company, as the former trustee of the Fund, to be indemnified out of the assets of the Fund. The right of indemnity persisted after the Company was wound up, but neither its lien nor its position as bare trustee conferred on the Company the power to realise the assets of the Fund in order to enforce that right of indemnity: Re M & J Super Fund Pty Ltd (in liq), unreported, 10 October 2018, Supreme Court of New South Wales (Parker J); see also Re Substar Holdings, supra, at [26]-[29] and the authorities there referred to; Re Glenvine Pty Ltd (in liq) [2020] NSWSC 866 at [42]-[48] and the authorities there cited. 7. The Court made orders on 24 October 2018 fixing the Applicant's remuneration for the period from his appointment as liquidator to 23 October 2018 in the amount $55,013 (exclusive of GST). On 17 June 2019, the Court fixed the Applicant's remuneration for the period 24 October 2018 to 3 April 2019 in the amount $40,658 (exclusive of GST). 8. By interlocutory process filed on 26 February 2021, the Applicant applies for a determination of his remuneration as liquidator for the Company and as receiver and manager of the assets and undertaking of the Fund for the period from 3 April 2019 to 27 January 2021 in the total amount of $99,836.50 (exclusive of GST). Of that total amount, the Applicant attributes $96,558.50 to work carried out in his capacity as receiver and manager and $3,278 to work carried out in his capacity as liquidator. The Applicant occupied both offices during the whole of the period in respect of which the remuneration determination is sought, and he seeks an order that both categories of remuneration, and the costs of this application, be paid out of the assets and undertaking of the Fund. 9. The Applicant relied on the following evidence in support of the application: 1. the affidavit of the Applicant sworn on 22 September 2018; 2. the affidavit of the Applicant sworn on 25 February 2021 and exhibit DM-2 to that affidavit; 3. the affidavit of the Applicant sworn on 11 March 2021; and 4. the affidavit of Ewelina Sylwia Switka (Ms Switka) affirmed 8 March 2021 and exhibit ESS-2 to that affidavit. 1. The application was heard on 15 March 2021. The Applicant adduced evidence that creditors of the Company and beneficiaries of the Fund had been provided with the interlocutory process and supporting evidence and had been notified of the hearing date. Counsel for the Applicant informed me at the commencement of the hearing, that when the matter was before Black J in the list earlier that day there had been no appearance by any interested party when the matter had been called. 2. For the reasons set out below, I have determined that the Applicant's remuneration in his capacity as liquidator of the Company and in his capacity as receiver and manager of the Fund should be fixed in the amounts sought by the Applicant in respect of the period from 3 April 2019 to 27 January 2021 and that the Applicant's reasonable costs of this application should be paid out of the assets of the Fund. Applicable legal principles 1. As I have noted above, almost all of the remuneration claimed by the Applicant is for work undertaken in his capacity as a receiver. The Court has power under r 26.4 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR) to approve and fix the remuneration of a court-appointed receiver and manager, which is able to be drawn from the assets to which the receiver has been appointed. 2. For work performed in his capacity as liquidator of the Company, the Applicant is entitled to receive remuneration for necessary work properly performed in the external administration of the Company in accordance with remuneration determinations made by the Court: Insolvency Practice Schedule, [1] ss 60-5, 60-10. In this case however, the Applicant relies on the Court's inherent equitable jurisdiction to allow the liquidator appointed to a corporate trustee to have his or her remuneration paid out of the trust assets. 3. The principles governing the exercise of that equitable jurisdiction were conveniently summarised by Black J in Re IMF Global Australia Ltd (in liq) (No. 2) [2012] NSWSC 1426 at [55] and restated by Brereton J in the following terms in Re North Food Catering Pty Ltd [2014] NSWSC 77 at [9]: "(1) The court has an inherent equitable jurisdiction to allow a trustee remuneration, costs and expenses out of trust assets, and this extends to a person such as a liquidator who is, for practical purposes, controlling a trustee (see Re Application of Sutherland [2004] NSWSC 798; (2004) 50 ACSR 297; Trio Capital Ltd (admin appointed) v ACT Superannuation Management Pty Ltd [2010] NSWSC 941; (2010) 79 ACSR 425). (2) The court may decline to exercise that jurisdiction where the company does not solely act as trustee and has sufficient beneficial assets to meet the liquidators' remuneration costs and expenses and where the work done by the liquidator in relation to trust assets may properly be treated as done for the purposes of winding up the company affairs. Thus, generally where a company has assets which are not held on trust, the liquidators' costs should usually fall on its non-trust assets (see Re GB Nathan & Co Pty Ltd (In Liquation) (1991) 24 NSWLR 674 at 685-689; Re Greater West Insurance Brokers Pty Ltd [2001] NSWSC 825; (2001) 39 ACSR 301). (3) Where the company has both trust assets and assets held beneficially by the company, the costs can be apportioned such that the remuneration attributable to the statutory liquidation work would fall on the assets beneficially owned by the company, whereas that which related to administering the trust property might fall on the trust assets (see Re French Caledonia Travel Service Pty Ltd (in liq) [2003] NSWSC 1008; (2003) 59 NSWLR 361; 48 ACSR 97 at [212])." 1. That statement of principles has been cited with approval and applied in many subsequent cases, including Re Houben Marine Pty Ltd (in liq) [2018] NSWSC 745 at [14]-[20], Re JML Property Services Pty ltd (in liq) [2018] NSWSC 1069 at [11], Re BBY (receivers and managers appointed) (in liq) (No. 3) [2018] NSWSC 1718 at [93]-[94] and Re Abderdeen All Farm Pty Ltd (in liq) [2020] NSWSC 770 at [11]-[20]. 2. There is no material difference between the substance of the principles that apply to the determination of the Applicant's remuneration as liquidator of the Company pursuant to the Court's equitable jurisdiction referred to above and the determination of his remuneration as receiver and manager of the assets and undertaking of the Fund: Re Houben Marine, supra, at [21]-[26] and the authorities there cited; Re Say Enterprises Pty Ltd [2018] NSWSC 396 at [6] and the authorities there cited. 3. In summary, the ultimate question is what amount of remuneration is reasonable, and the onus is on the Applicant to establish the reasonableness of the amount sought. The Court must determine what amount is reasonable, bringing an independent mind to considering whether the work was reasonably undertaken in the due course of the winding up and receivership and whether the amount claimed for that work is a fair and reasonable sum to compensate the Applicant for the work done in the discharge of his duties. The matters referred to in s 60-12 of the Insolvency Practice Schedule are relevant by analogy. 4. Where a time-based approach is adopted, as in the present case, the Court is guided by professional scales of charges, with emphasis on the broad average or general rate charged by persons of the relevant status and qualifications who carry out the work. The Court will have regard to time sheets that describe the work done and the time taken, but it is not the role of the Court constituted by a judge to undertake a line by line review of the bill narratives: In the matter of Fearndale Holdings Pty Ltd (admin apptd) (recs & mgrs apptd) [2020] NSWSC 901 at [38] (Black J). 5. Proportionality, usually assessed by reference the work done compared with the size of the property the subject of the winding up and the receivership, 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. 6. As the Applicant submitted, the mere fact that work performed does not lead to augmentation of the funds available for distribution to creditors of the Company does not mean that a liquidator is not entitled to be remunerated for the work. 7. No court approval or specific order is necessary for the payment of disbursements in the absence of a challenge, although the Applicant as liquidator and receiver should scrutinise them to ensure that they are reasonable and properly payable, and the Court has inherent jurisdiction to review disbursements as the Applicant is an officer of the Court. However, it is open to the Applicant to seek a direction that he would be justified in paying certain disbursements in order to obtain prior protection in respect of such a disbursement. Consideration and determination 1. In his affidavits sworn on 25 February 2021 and 11 March 2021, the Applicant described the work performed in his capacity as receiver in the period since 3 April 2019. That work includes: 1. investigating the Company's affairs and history and transactions involving the Fund, including: 1. reviewing general and other ledgers and bank statements of the Fund and the Company; 2. analysing bank transactions, asset movements, rollovers, lump sum withdrawals, pension payments, movement of funds and receipts and disbursements; 3. reviewing documents provided by the ATO concerning its audits of the Fund; and 4. extensive review and analysis of transactions in the period leading up to the winding up of the Company; 1. investigating the directors' conduct, including establishing potential offences under the Corporations Act; 2. preparing a report pursuant to s 533 of the Corporations Act, supported by a detailed file note recording the basis of the answers to the questions in that report; 3. finalisation of the Fund's 2018 accounts and tax return; 4. conducting inquiries into the investments undertaken by the Fund and their current status and value, including obtaining and reviewing information from BIT's accountants; 5. considering and taking legal advice in relation to possible courses of action available, potential public examinations and the prospects of asset recovery; 6. corresponding with the ATO, including engaging in extensive discussions and detailed correspondence concerning potential recovery actions available to the Company as the former trustee and the legal strategy and options concerning those potential actions. The Applicant deposed that the detailed information provided in his correspondence with the ATO meant that the correspondence was often prepared over the course of several days; 7. preparatory work for public examinations; 8. preparing and lodging activity statements with the ATO, in relation to the receivership and the liquidation; 9. preparing remuneration and other statutory reports, schedule of receipts and payments and other circulars to creditors; 10. corresponding with creditors in relation to remuneration reports and responding to stakeholder queries and questions; and 11. preparation of this application for determination of remuneration. 1. The Applicant deposed that this work has resulted in the identification or deeper investigation of a number of potential causes of action that may result in recoveries for the benefit of the Company's creditors, including claims against the Fund's auditor, the Fund's accountant, claims for the recovery of voidable transactions and claims against the directors of the Company for breaches of their duties as directors. Without disclosing the substance of legal advice received, the Applicant deposed that he had received and reviewed a detailed legal opinion from senior counsel as to claims that may be available to the Applicant in his capacity as liquidator and receiver. It is not entirely clear from the evidence whether this opinion was obtained by the Applicant and shared with the ATO, or obtained by the ATO and shared with the Applicant. In any event, the ATO is privy to the contents of the opinion. 2. The Applicant also described the work carried out by him and his staff since 3 April 2019 in his capacity as liquidator as including: 1. preparing and lodging statutory forms with ASIC; 2. preparing remuneration and other statutory reports; 3. considering and gathering information concerning the Company's affairs and history, the conduct of its directors and potential offences by the directors for the purpose of preparing a report under s 533 of the Corporations Act. 1. The Applicant deposed that he expects that the following work will be required in the future conduct of the liquidation and the receivership: 1. continuing investigations into the Fund's business, affairs and specific transactions; 2. liaising with the ATO in relation to potential recovery actions; 3. conducting public examinations of the Company's directors and other parties with knowledge of the Company's affairs; 4. pursuing recovery claims as appropriate; 5. attending to administrative matters, such as lodgement of statutory forms and returns; 6. paying a dividend to creditors if there are funds available following the pursuit of available claims; and 7. lodging final accounts as receiver. 1. As at the date of the Applicant's affidavit sworn on 11 March 2021, no creditors or beneficiaries had communicated to the Applicant any objection to his remuneration set out in the remuneration report and claimed in the interlocutory process. As I have mentioned earlier in these reasons, no creditor or beneficiary appeared and sought leave to be heard at the hearing of the application on 15 March 2021. 2. The exhibit to the Applicant's affidavit sworn on 25 February 2021 includes: 1. a remuneration report to creditors dated 3 February 2021; 2. an itemised spreadsheet of all of the work done in relation to the tasks that the Applicant characterises as having been carried out in discharging his functions as receiver and manager of the assets and undertaking of the Fund, and the remuneration amount for each item of work applying the hourly rates of the Applicant's firm; and 3. a similar itemised spreadsheet of all of the work done in relation to the tasks that he characterises as having been undertaken in discharging his functions as liquidator of the Company. 1. The Applicant deposed that the spreadsheets accurately reflect and describe the work done by him and staff of his firm. He gave evidence that tasks have been allocated to staff members based on the complexity of the task and the qualifications and experience or seniority of the relevant staff member. Based on his own knowledge of the work required in the receivership and in the liquidation and applying his experience as an insolvency practitioner, the Applicant considers that the time spent fairly reflects work that was necessary and that the work has been properly performed in an efficient and timely manner. The Applicant believes that the amount of remuneration claimed is fair and reasonable and that the care, skill and responsibility attached to the work justifies the level of fees claimed. 2. There is clearly some overlap between the work that the Applicant describes as having been done in his capacity as receiver and in his capacity as liquidator. As the Applicant acknowledged in his affidavit of 25 February 2019, the work is not always easily separated into work referable to the receivership as opposed to the liquidation. The Applicant deposed that there has been no duplication between costs allocated to the receivership and costs allocated to the liquidation, with the exception of four entries that he identified as possibly duplicated in the receivership and liquidation spreadsheets. The fees relating to those entries have been excluded from the amount of remuneration claimed. My own review of the spreadsheets confirmed that there had been no duplication other than those instances identified by the Administrator and excluded from the claim. [2] 3. The hourly rates charged for the work range from $180 for administrative staff and analysts to $575 for the Applicant and partners of his firm. Senior managers, being persons of more than 7 years' experience, have an hourly rate of $400 whilst managers of 4 to 7 years' experience have an hourly rate of $300. I consider that those hourly rates are reasonable and competitive, and that it is reasonable for the Applicant to apply time-based charging to a matter of this complexity. 4. I have reviewed the spreadsheets in a broad way and I am satisfied that the work for which remuneration is claimed is consistent with the work described in the Applicant's affidavits and that the work was done in a timely manner by persons of appropriate seniority and experience within a team of only eight people, which seems to me to be an appropriately sized team to progress the work without spreading knowledge too thinly. 5. I have also had regard to the breakdown of the work set out in the remuneration report into the categories of Assets, Creditors, Investigations and Administration. This breakdown confirms my view based on the spreadsheets that work was done by persons of appropriate seniority and experience. 6. The work done by the Applicant personally falls solely in the Investigations category, which he has described in his affidavits as the complex and detailed area of work. It is unsurprising that this category accounts for approximately one half of the remuneration claimed. Most of the remaining work in this category has been shared by a senior manager who was subsequently promoted to partner, a manager who was subsequently promoted to senior manager and a senior analyst. The average hourly rate for work done in this category is approximately $399. 7. The next largest category of work by amount of remuneration claimed is the Creditors category. Most of the work in this category has been done at senior manager level, with some work done by a partner. The average hourly rate for the work in this category is approximately $427. This blended rate is slightly higher than for the Investigations category because, although there were fewer hours' work performed, the proportion of hours performed by senior staff was greater than that prepared by junior staff. By contrast, the number of hours performed at manager and senior analyst level in the Investigations category brought the average hourly rate down for that category. In my opinion, that is consistent with the nature of the work performed in the two categories. 8. The next largest category of work by amount of remuneration claimed is the Administration category. This category includes a few hours work by a partner, with the bulk of the work being performed at manager or senior manage level. The average hourly rate for the work in this category is approximately $340. 9. Very little work was performed in the Assets category, with all of the work being performed by one senior manager and one analyst. 10. I am troubled that it has not been possible to assess the proportionality of the work done in the usual way by comparing the cost of the work to the size of the property the subject of the winding up and the receivership or the potential recoveries that the investigative work undertaken may yield. 11. There was no evidence at all concerning the size of the property. The absence of this evidence was not expressly explained, but I infer that it is difficult to for the Applicant to provide a meaningful estimate of the size of the property in circumstances where there are potential claims against the accountants and auditors of the Fund and potential voidable transaction claims, and public examinations have not yet been conducted. 12. Nor was there any evidence concerning the value of the potential claims referred to above. However, I infer that it is likely to be difficult to value those claims before information is gathered through the proposed public examinations. 13. I take some comfort from the fact that the ATO, being the Company's largest creditor, has a keen interest in ensuring that money is spent on investigations and legal processes only where there are reasonable prospects that this will materially enhance the recoveries for the benefit of creditors. The ATO has been kept well informed of these investigations and processes, and has not notified the Applicant of any objection to the remuneration claimed or taken any step to oppose this application. I infer from this that the Applicant's investigations and processes undertaken to date have been directed to identifying and moving towards potential prosecution of claims that, on the basis of the information presently known, have reasonable prospects of materially improving the return for creditors of the Company in the winding up. Clearly, there is some risk that the work will ultimately not result in successful recoveries or claims. However, the existence of that risk does not mean that it has not been reasonable for the Applicant to do this investigative and legal work to date or that he is not entitled to be remunerated for the work. 14. On that basis, and for the other reasons explained above, I am satisfied that: 1. it was reasonable for the Applicant to undertake the work described in his affidavits, remuneration report and spreadsheets with a view to maximising the extent to which the Company, as former trustee of the Fund, might be able to realise its right to be indemnified out of the assets of the Fund in respect of debts incurred in its capacity as trustee; 2. that the work was undertaken in a reasonable manner; and 3. that the amount charged for the work is fair and reasonable. 1. The Applicant has been the liquidator of the Company and the receiver and manager of the assets of the Fund for the whole of the period in respect of which remuneration falls to be determined. The Company has no assets other than the assets of the Fund that it holds on trust, and has carried on no business other than acting as the trustee of the Fund. Irrespective of the fact that reasonable minds may differ as to the characterisation of certain work as being work in the course of the receivership or work in the course of the winding up, it is appropriate that the remuneration for the work be paid out of the assets of the Fund in accordance with the principles referred to at [12]-[5] above. Conclusions and orders 1. For all of the reasons above, I make the following orders: 1. Order that the remuneration of the Applicant, Dermott Joseph McVeigh (the Applicant): 1. in his capacity as the receiver and manager of the property, assets and undertaking of the Berry Superannuation Fund ABN 65 762 831 922 (the Fund), for the period from 3 April 2019 to 27 January 2021, be fixed in the sum of $96,558.50 (exclusive of GST); and 2. in his capacity as liquidator of the First Plaintiff, M & J Super Fund Pty Ltd (in liq) ACN 125 938 865 (the Company), for the period from 3 April 2019 to 27 January 2021, be fixed in the sum of $3,278.00 (exclusive of GST). 1. Order that the remuneration referred to in order 1 above and the Applicant's costs of the interlocutory process filed on 26 February 2021 be paid out of the assets of the Fund. ********** Endnotes 1. Schedule 2 of the Corporations Act. 2. I would infer that entries in both the receivership and liquidation spreadsheets on the same date for work in relation to, for example, "BAS", reflects work of the same kind that has been done for the purpose of the Fund and the Company on the same date. The Applicant confirmed this in his affidavit sworn on 11 March 2021. 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 March 2021