Supreme Court New South Wales Medium Neutral Citation: In the matter of Banksia Securities Limited (in liquidation) (receivers and managers appointed) [2018] NSWSC 229 Hearing dates: 19 February 2018 Decision date: 28 February 2018 Jurisdiction: Equity - Corporations List Before: Black J Decision: The remuneration of the Special Purpose Receivers for the period 1 April 2017 to 30 September 2017 is approved and fixed in the sum of $158,547. Catchwords: CORPORATIONS – external administration – application to approve the remuneration of special purpose receivers for work already performed – where ASIC does not appear to make submissions after being given notice of the application –whether the amount of remuneration claimed is reasonable and whether it is to be calculated on a time charged basis. Legislation Cited: - Corporations Act 2001 (Cth) ss 283HB, 425 - Uniform Civil Procedure Rules 2005 (NSW) r 26.4 Cases Cited: - Ide v Ide [2004] NSWSC 751; (2004) 184 FLR 44 - Mohamed v Hurstville Tower Medical Clinic Pty Ltd (in liq) [2006] NSWSC 4 - Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) [2015] NSWSC 1378 - Re Banksia Securities ltd (in liq) (recs and mgrs apptd) [2016] NSWSC 357 - Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) [2017] NSWSC 540 - Re Idylic Solutions Pty Ltd as trustee for Super Save Superannuation Fund [2016] NSWSC 1292 - Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38; (2017) 93 NSWLR 459; (2017) 343 ALR 524; (2017) 118 ACSR 333 - Wenkart v Pantzer [2005] FCA 1572 Category: Procedural and other rulings Parties: The Trust Company (Nominees) Limited (Plaintiff) John Ross Lindholm and Peter Damien McCluskey (Special Purpose Receivers) Representation: Counsel: J Redwood/P Bindon (Applicants - Special Purpose Receivers) Solicitors: Maddocks (Applicants - Special Purpose Receivers) File Number(s): 2015/252832 Judgment Background to the application 1. By Interlocutory Process filed on 15 January 2018, the Applicants, Mr John Lindholm and Mr Peter McCluskey as special purpose receivers ("Special Purpose Receivers") appointed to Banksia Securities Ltd (in liq) (recs and mgrs apptd) ("Banksia"), sought an order that their remuneration for the period 1 April 2017 to 30 September 2017 be approved and fixed in the sum of $158,547. They also sought a further order for the release of a specified sum to them, by the general purpose receivers of Banksia, for the payment of future remuneration, costs and expenses, and I approved the release of that amount to them in an ex tempore judgment delivered on 19 February 2018 ([2018] NSWSC 228). 2. By way of background, the Special Purpose Receivers were appointed as joint and several special purpose receivers of specified property of Banksia, and particularly Banksia's rights and entitlements that are subject of complex proceedings brought in the Supreme Court of Victoria ("Banksia proceedings"), by orders made on 30 September 2015 ("September 2015 Orders") and varied on 29 February 2016 ("February 2016 Orders"). Those orders were made pursuant to s 283HB of the Corporations Act 2001 (Cth), in the circumstances summarised in the judgments in Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) [2015] NSWSC 1378 and Re Banksia Securities ltd (in liq) (recs and mgrs apptd) [2016] NSWSC 357. 3. Order 5 of the September 2015 Orders provided that the Special Purpose Receivers be allowed such remuneration and expenses as may be fixed by this Court or the Supreme Court of Victoria incurred in their capacity as special purpose receivers of the relevant assets. The February 2016 Orders permitted the Special Purpose Receivers to draw on the "SPR Litigation Fund" established under those orders for payment of their remuneration, costs and expenses as they were incurred, subject to a process for subsequent approval of remuneration by a committee of inspection and by the Court, and an undertaking to repay any remuneration paid to them that was not subsequently approved. 4. Notice of this application has been given to the Australian Securities and Investments Commission ("ASIC"). ASIC advised that it did not object to the relief sought in the application, but suggested that the Special Purpose Receivers should clarify the circumstances surrounding their intervention in certain proceedings brought by ASIC to which I refer below. They have done so in this application. I infer, from ASIC's position, that nothing in the material provided to it has caused it to form the view that any aspect of the application requires regulatory intervention or warrants the making of submissions before the Court: Re Idylic Solutions Pty Ltd as trustee for Super Save Superannuation Fund [2016] NSWSC 1292 ("Idylic Solutions") at [6]; Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) [2017] NSWSC 540 ("Banksia 3") at [23]. It does not seem to me that a contradictor need be appointed in this application, by reason of the nature of the application and the costs which would be involved in such an appointment, and I note that Gleeson JA formed the same view in the Special Purpose Receivers' earlier application. Applicable legal principles 1. I am satisfied that the Court has jurisdiction to make the further orders now sought under s 283HB(1) of the Corporations Act or r 26.4 of the Uniform Civil Procedure Rules 2005 (NSW) or in the Court's inherent jurisdiction, and I note that Gleeson JA formed the same view in respect of the earlier remuneration application by the Special Purpose Receivers in Banksia 3 above. 2. The principles relevant to an application of this kind were also helpfully summarised by Gleeson JA in Banksia 3 above, where his Honour noted that common bases for calculation of remuneration included time-based charging and a commission based on percentage of recoveries, and that the approach to be adopted is directed to securing reasonable remuneration in the circumstances. His Honour referred (at [39]) to the often-quoted observations of Young CJ in Eq in Ide v Ide [2004] NSWSC 751; (2004) 184 FLR 44 as to the role of the Court in dealing with such an application, and to the further observations of Branson J in Wenkart v Pantzer [2005] FCA 1572 and of Barrett J in Mohamed v Hurstville Tower Medical Clinic Pty Ltd (in liq) [2006] NSWSC 4 at [9]. His Honour also noted the analogy with the factors specified in s 425 of the Corporations Act as relevant to the Court's power to fix the remuneration of a person appointed as a receiver of a corporation's property under a power contained in an instrument. 3. His Honour also referred to the Court of Appeal's decision in Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38; (2017) 93 NSWLR 459; (2017) 343 ALR 524; (2017) 118 ACSR 333 and summarised the principles which arose from Bathurst CJ's judgment in that case (at [44]-[46]) as follows: "First, the onus is on the special purpose receivers to establish that the remuneration claimed is reasonable. It is the function of the Court, here under s 283HB of the Corporations Act, to determine the remuneration by considering the material provided and bringing an independent mind to bear on the relevant issues: Sakr at [54]. Second, many of the factors in s 425(8), in particular, pars (d)-(e) and (g)-(h) can be seen to have as their unifying theme the concept of proportionality. The question of proportionality in terms of work done as compared with the size of the property the subject of the insolvency administration or the benefit to be obtained from the work, is an important consideration in determining reasonableness: Templeton v Australian Securities and Investments Commission (2015) 108 ACSR 545; (2015) FCAFC 137. The work done must be proportionate to the difficulty and importance of the task in the context in which it needs to be performed. This is what is encompassed in assessing the value of the services rendered: Sakr at [55]. Third, the mere fact that the work performed does not lead to augmentation of the funds available for distribution does not mean that the special purpose receivers are not entitled to be remunerated for it. In the present case, the Trustee fee application and the time spent consulting with the committee of creditors on various issues, including obtaining approval of the special purpose receivers' remuneration will not result in the augmentation of the funds available for distribution. Provided it was reasonable to carry out the work and the amount charged is reasonable, there is no reason a liquidator should not recover remuneration for undertaking the work: Sakr at [57]–[58]. 1. In Idylic Solutions above, I observed (at [58]) that it is not the Court's role, constituted by a Judge, to undertake a line by line review of the relevant narratives in an insolvency practitioner's billing record, but I there reviewed the relevant narratives in a broad way in order to satisfy myself that they supported the other evidence led in respect of the claimed remuneration, and Gleeson JA adopted the same approach in Banksia 3 above at [48]. I have also taken that approach in this case. The evidence on which the Special Purpose Receivers rely 1. The Special Purpose Receiver's application for remuneration is supported by Mr Lindholm's affidavit dated 9 January 2018. Mr Lindholm's evidence is that he is a member of ARITA and has had regard to its code of practice and observes its principles and standards of conduct in his practice. Mr Lindholm's affidavit noted that the Special Purpose Receivers had deferred seeking approval for their remuneration, in order to avoid multiple applications, and where the future direction of the proceedings was uncertain by reason of settlement discussions. I am satisfied that that course was appropriate, and there is now greater certainty in the proceedings by reason of a settlement of claims against Trust Company (Nominees) Ltd ("Trust Co"); a settlement with a professional indemnity insurer, subject to a further application for Court approval; and the fact that the proceedings will now go to trial in respect of Banksia's insurance broker. 2. Mr Lindholm's affidavit exhibited a remuneration report summarising remuneration claimed in the period to 30 September 2017, the subject of this application. Mr Lindholm fairly recognised that there was a difference, of about $5,000, between the amount set out in that report and the amount claimed in this application, which resulted from time sheets for the month of September 2017 that had not been entered at the time of preparation of that report. That difference is not material for present purposes. 3. Mr Lindholm's evidence is that he considers that his firm's hourly rates are reasonable, in line with market rates for firms of similar size and capability to his firm, and accurately reflect the experience, seniority and capability of each staff member. Plainly, an insolvency practitioner's evidence of that character is not conclusive of the issue, but there is no reason to doubt Mr Lindholm's view in the relevant circumstances. Mr Lindholm's affidavit, and supporting materials, also indicate that the bulk of the remuneration claimed relates to the categories of "Investigations" and "Creditors", reflecting the steps taken in the conduct of the Banksia proceedings and dealings with the committee of creditors and debenture holders in the relevant period. Mr Lindholm's report also provided a more detailed categorisation of the work done, and he points to the voluminous evidence filed by Trust Co, other parties and by Banksia in the Banksia proceedings. While I appreciate that much of the relevant work will have been undertaken by Counsel, by the solicitors retained by the Special Purpose Receivers, and by expert witnesses, I also recognise that significant work was properly undertaken and responsibility assumed by the Special Purpose Receivers in respect of the conduct of the Banksia proceedings. 4. Mr Lindholm also drew attention to the circumstances in which the Special Purpose Receivers had intervened in, and then withdrew from, proceedings brought by ASIC against a director of Banksia. The amount of the Special Purpose Receivers' remuneration referable to that matter is not substantial and I am satisfied that it is properly recoverable in this application. 5. Mr Lindholm also refers to the fact that the remuneration report on which he relies in this application was drawn to the attention of the committee of inspection, and it resolved to approve the Special Purpose Receivers' remuneration at its meeting on 9 October 2017. That matter supports the application, although it is also not determinative. 6. The Special Purpose Receivers also rely on the affidavit of Mr Samuel Kingston dated 16 February 2018, a solicitor acting for them in the Banksia proceedings, in respect of the application. Mr Kingston gives evidence of service of this application on ASIC and of the circumstances relating to the Special Purpose Receivers' intervention in the proceedings brought by ASIC against the director of Banksia. He also draws attention to the observations of Moshinsky J, made when the Special Purpose Receivers ultimately did not proceed with that application, recognising the complexity of the matter and observing that his Honour did not consider that any criticism could be made of the Special Purpose Receivers in respect of their proposed intervention. There is no basis for me to take any different approach to that which his Honour adopted. 7. Mr Kingston also refers to service of the application on the general purpose receivers and on Trust Co and provides an update as to the status of the Banksia proceedings, including the approval of a settlement with Trust Co by the Supreme Court of Victoria, the proposed settlement with Banksia's professional indemnity underwriters and the continuing claim against an insurance broker to Banksia. The Special Purpose Receivers' submissions and determination 1. Mr Redwood, who appears with Ms Bindon for the Special Purpose Receivers, submits that the amount of remuneration sought to be approved is modest in regard to the significance of the responsibilities assumed and performed by the Special Purpose Receivers in respect of the Banksia proceedings, the complexity of those proceedings and the amounts claimed in them, and also points to the substantial settlement obtained from Trust Co in the proceedings, which was approved by the Supreme Court of Victoria, inter alia, on the basis that it represented the maximum amount of funds available to Trust Co to fund that settlement. Mr Redwood also points to the nature of the work undertaken by the Special Purpose Receivers and to the fact that much of that work has involved the exercise of strategic and commercial judgment by Mr Lindholm and his input into significant forensic and strategic judgments. 2. Mr Redwood also points to the fact that the committee of inspection has approved the remuneration sought by the Special Purpose Receivers, and he rightly submits that that approval weighs in favour of the reasonableness of the remuneration claimed, although it is not sufficient in itself to establish that matter. Mr Redwood also emphasises Mr Lindholm's experience as an insolvency practitioner and his evidence as to compliance with ARITA's code of professional practice and the opinion that he has expressed that the remuneration he claims is reasonable and has been properly and necessarily incurred, and to the absence of any evidence raising any question as to that matter. 3. I am satisfied that the work undertaken by the Special Purpose Receivers was reasonably necessary and involved exceptional complexity, having regard to the scope of the proceedings, and notwithstanding the involvement of Counsel and experienced solicitors in the conduct of the proceedings. The complexity of the issues with which the Special Purpose Receivers were required to deal was well beyond the ordinary, and they accepted a significant degree of responsibility in that regard. The extent of recoveries which they have achieved is such that the remuneration claimed represents a small proportion of those recoveries, and time-based remuneration is significantly more favourable to debenture holders than would be a proportion of recoveries. Other matters noted by Gleeson JA in Banksia 3 continue to be relevant, including the extent of evidence which was required to be prepared in the Banksia proceedings; the range of issues that have been required to be addressed in interlocutory applications; the complexity of the settlement negotiations which have now led to apparently favourable settlements in those proceedings, although one claim remains on foot; and the fact that the efforts of the general purpose receivers and Special Purpose Receivers have allowed the payment of substantial dividends to debenture holders, although still less than they would have expected to receive from their investment in those debentures. 4. I am satisfied that it is appropriate that the Special Purpose Receivers' remuneration be determined on a time charging basis and in the amount claimed in the particular circumstances. I recognise that a significant amount of work was done by Mr Lindholm personally, and is claimed at the higher charge-out rate applicable given his seniority. That is not surprising in the particular case, given the nature of the issues that the Special Purpose Receivers were addressing at this stage of the proceedings, including progressing the potential settlements of the several proceedings. 5. For these reasons, I make an order in the form sought, that the remuneration of the Special Purpose Receivers for the period 1 April 2017 to 30 September 2017 be approved and fixed in the sum of $158,547. ********** 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: 01 March 2018