Supreme Court New South Wales Medium Neutral Citation: In the matter of Day & Night Online Transport Pty Ltd [2019] NSWSC 292 Hearing dates: 11 March 2019 Date of orders: 21 March 2019 Decision date: 21 March 2019 Jurisdiction: Equity - Corporations List Before: Rees J Decision: Determination that liquidator entitled to receive remuneration pursuant to s 60-10 of the Insolvency Practice Schedule (Corporations) Further consequential orders at [24]. Catchwords: CORPORATIONS — Winding up — Liquidators — Remuneration — Application for approval of liquidator's remuneration — Short period of liquidation before winding up terminated — Whether remuneration reasonable — Whether solicitors' fees may be approved as liquidator's disbursements — Determination made. Legislation Cited: Civil Procedure Act 2005 (NSW), s 98 Corporations Act 2001 (Cth), ss 473, 1551, 1579, 1581, 1634, Sch. 2 Corporations Regulations 2011 (Cth), r 10.25.01, Sch. 13 Insolvency Law Reform Act 2016 (Cth) Insolvency Practice Rules (Corporations) 2016, r 70-30 Insolvency Practice Schedule (Corporations), ss 60-10, 60-12 Uniform Civil Procedure Rules 2005 (NSW), r 6.24 Cases Cited: Deputy Commissioner of Taxation v Starpicket Pty Ltd (No 2) [2013] FCA 699 GIS Electrical Pty Ltd v Melson [2001] WASC 314 In the matter of AAA Financial Intelligence Ltd (in liquidation) (No 2) [2014] NSWSC 1270 In the matter of Day & Night Online Transport Pty Ltd (in liquidation) [2018] NSWSC 796 In the matter of Plutus Payroll Australia Pty Ltd (in liquidation) [2018] NSWSC 1092 In the matter of Prime Space Property Investment Limited (in liquidation) [2016] NSWSC 1821 In the matter of Sakr Nominees Pty Ltd [2016] NSWSC 709 In the matter of Sakr Nominees Pty Ltd [2017] NSWSC 668 In the matter of Sakr Nominees Pty Ltd (2017) 93 NSWLR 459; [2017] NSWCA 38 In the matter of Stockford Limited (subject to Deed of Company Arrangement); (2005) 52 ACSR 279; [2004] FCA 1682 Re Huxtable Timeshare Resort Club Ltd (2010) 187 FCR 13; [2010] FCA 673 Re Solfire Pty Ltd (in liq) (No 2) [1999] 2 Qd R 182; (1998) 16 ACLC 1156 Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96; 16 ACLC 1653 Texts Cited: Austin & Black Annotations to the Corporations Act (LexisNexis, looseleaf) Category: Consequential orders (other than Costs) Parties: SV Partners Insolvency (NSW) Pty Ltd (Applicant) TollAust Pty Ltd (ACN 050 538 693) (Plaintiff) Day & Night Online Transport Pty Ltd (ACN 164 871 014) (Defendant) Representation: Solicitors: Gartree Thomson Lawyers (Applicant) There was no appearance for the Plaintiff or the Defendant on this application. File Number(s): 2018/97181 Publication restriction: Nil Judgment 1. HER HONOUR: This is an application to approve a liquidator's remuneration. Although the application was made under section 473(3)(b)(ii) of the Corporations Act 2001 (Cth), section 473 was repealed by the Insolvency Law Reform Act 2016 (Cth). The section has been replaced by Division 60 of Schedule 2 to the Act, the Insolvency Practice Schedule (Corporations), and I will treat the application as having been made under that Division. 2. The former legislation continues to apply in relation to the remuneration of an external administrator of a company who was appointed before the commencement date: section 1581 of the Act. Part 3 of the Schedule, which includes Division 60, applies in relation to a new external administration of a company: section 1579(1). "New external administration" of a company means an external administration of a company that starts on or after the commencement day: section 1551. The relevant commencement date is also defined in section 1551 to mean that of the proclamation of those provisions of the Insolvency Law Reform Act, which is 1 March 2017. However, this date has been effectively postponed to 1 September 2017 by the combined action of regulation 10.25.01 and Schedule 13 of the Corporations Regulations 2011 (Cth), made under section 1634 of the Act, which allows provisions of a transitional nature to be made by regulation. Facts 1. In January 2018, the plaintiff, TollAust Pty Ltd, served a statutory demand on the defendant, Day & Night Online Transport Pty Ltd (the Company), in the amount of $12,443.54 for unpaid tolls. In March 2018, an originating process was filed seeking the appointment of a liquidator. On 1 May 2018, Jason Porter was appointed as a liquidator to the Company. 2. On 4 May 2018, the Company filed an Interlocutory Process to terminate the winding up. On 8 May 2018, the liquidator's solicitor wrote to the Company outlining what was required to be demonstrated for the application to be successful. On 11 May 2018, the liquidator agreed to terminate the winding up subject to payment of his costs and those of his solicitors, then totalling $10,907.88, … subject to the Court making proposed orders on 17 May 2018 … [A]s advised we still have concerns that the Court will not make the requested orders by consent in absence of further affidavit evidence of solvency. 1. The Company responded that it was prepared to pay the liquidator's costs as agreed or assessed, but asked to know the "key items" of those costs. The liquidator provided a remuneration and disbursements report from 1 to 11 May 2018 and a pre-billing guide from his solicitors from 4 to 14 May 2018. Both the liquidator and his solicitor indicated that additional costs would be incurred in preparing creditor correspondence, undertaking investigations and dealing with the termination application. 2. On 15 May 2018, the Company's solicitor provided draft consent orders which it sought to have finalised that day so that the registrar could make the orders in chambers and the parties would not be required to appear. Such an approach by the Company's solicitor was unlikely to have met with success as, when a company is placed in liquidation, the Court needs to be satisfied that the company is solvent before the liquidation is terminated. 3. On 16 May 2018, consent orders terminating the winding up were filed with the Court. The liquidator also received a cheque for his fees up to and including 16 May 2018. Unsurprisingly, the consent orders were not made in chambers by the Registrar. Rather, the matter was listed for directions before Black J on 21 May 2018. The Company did not appear on that occasion, although the transcript indicates that the liquidator expected that it would. His Honour stood the matter over to 28 May 2018. The liquidator's solicitor reported to the Company's solicitor: As previously advised, consent orders will not be sufficient for the Court to exercise their discretion as you will have to prove, amongst other things, solvency. This delay could have been avoided and now further costs may be incurred. … Please review our initial letter advising what the Court needs to see in exercising their discretion so that you can have the matter finalised on [28 May 2018]. We also recommend that you attend the Court on this date or your application may be struck-out. Let me know if you need anything from the liquidator for your application. 1. Under rule 70-30 of the Insolvency Practice Rules (Corporations) 2016, the Report to Creditors was due on 28 May 2018, being 20 business days after the external administrator was appointed by the Court: rule 70-30(3)(c). It was also the day to which Black J had adjourned the matter. The liquidator was not to know whether the Company would attend on that occasion or satisfy the Court that the winding up should be terminated. It was reasonable in those circumstances for the liquidator to attend to his statutory obligations. 2. On 23 May 2018, the liquidator began to prepare the Report to Creditors in sufficient time for it to be drafted and reviewed before it was due. On 25 May 2018, the liquidator also wrote to a company who had been granted a security interest by the Company and sought information in respect of the security interest. On 25 May 2018, the Company's solicitor protested noting that "it makes no sense" for the liquidator to work after signing the consent orders. He added that, "Once the motion is determined only then it could take further actions." The liquidator's solicitor responded that the liquidator was unable to cease work without a court order but was "minimising the work", noting: The liquidator had a statutory obligation to perform the duties imposed on them, pursuant to the order made by the court winding up the company. The obligation does not stop on the signing of a consent order. The liquidator's solicitor advised that a further $3,094.50 of costs had been incurred, assuming that the matter concluded on 28 May 2018, and sought the Company's consent to a further costs order. 1. On 28 May 2018, the application to terminate the winding up was heard by Gleeson JA: In the matter of Day & Night Online Transport Pty Ltd (in liquidation) [2018] NSWSC 796. His Honour set aside the order appointing the liquidator as the Company had changed its registered office in 2015 on changing accountants, but not informed ASIC. As a result, the statutory demand and hearing of the originating process did not come to the notice of the Company. Whist his Honour expressed some doubts that a positive conclusion of solvency could be reached by the Court, it was not necessary to consider this further on the application given the circumstances in which the order had been obtained to appoint a liquidator. 2. Submissions were made in respect of costs. The Company expressed disquiet at the costs which had been incurred since the consent orders had been signed. The transcript records Gleeson JA's remarks on this subject: His Honour: Yes, but your side's at fault, Mr Friedgut. Mr Friedgut [counsel for the Company]: Yes I appreciate that your Honour. His Honour: And your side misfired because you had two barrels for an application and the short minutes went down one road and you're now retreating from that and you seek to go another road which is the sensible way of dealing with the matter. So that's why we are here today. Friedgut: Yes, although – His Honour And it has to be dealt with by a Judge in any event. …. Those consent orders could not have been made in Court. … And those consent orders would have required you to prove solvency of the company … and the liquidator properly pointed out in his correspondence the inadequacy of your evidence on that point. … Now you have chosen to take a step back and only pursue the rule 36.16 application, so that's put on a slightly different basis. I can understand your concern about the costs, but ultimately, given the small amounts involved at the end of the day, notwithstanding what's been paid to date, the best that I think that can be done for your client is that the costs be agreed or assessed. 1. His Honour made the following order: The defendant pay the liquidator's reasonable fees and expenses, including legal fees, from 17 May 2018 up to and including today, as assessed or agreed. 1. Correspondence ensued between the liquidator's solicitor and the Company in respect of remaining fees. The Company disputed the further fees and suggested that they be assessed by a costs assessor. The liquidator's solicitor explained that further costs had been incurred because the Company had not progressed its application by filing the evidence as to solvency nor submitted the consent orders through the online court on 16 May 2018 such that the liquidator had to appear on 17 May 2018 and 21 May 2018. The Company offered $5,750 to pay all remaining costs, suggesting that the rate of charges was extravagant and not reasonable. The Company did not pay the offered amount. 2. On 31 August 2018, Mr Porter served notice of intention to apply for remuneration. On 28 October 2018, the liquidator filed an Interlocutory Process. In support of the application, Mr Porter deposes that he has reviewed all entries of the detailed narration prepared by his staff and he believes that the fees were reasonably incurred and the most appropriate level of staff was used on each task. 3. On 3 December 2018, Black J ordered the liquidator "to serve all parties with an up-to-date remuneration report for work completed to date and work in progress in Excel format with additional columns for objections, response and Court's remarks." The plaintiff and the Company were directed to serve any objections in response to the schedule. 4. On 14 January 2019, the liquidator served a remuneration and disbursement report totalling $7,281.86, of which $3,068.76 are the solicitors' fees listed as a disbursement. It appears that in this way the liquidator seeks to have his legal fees approved by the Court as a disbursement rather than incurring the cost of having them assessed. 5. On 6 February 2019, the Company's solicitors advised that they no longer acted for the Company. The liquidator obtained a company search, which I note continues to list the registered office of the Company as being that at which the statutory demand was earlier served. The liquidator's solicitors then sent a copy of the Court's order and the remuneration report to the Company at four addresses. On 21 February 2019, the Company's solicitor filed a notice of intention of ceasing to act, confirmed that the Company had been kept up to date with the proceedings, and advised that the Company's last known address was one of the four addresses to which the letter from the liquidator's solicitor had earlier been sent. 6. There was no appearance on 11 March 2019 when the application was listed for hearing before me. No objections were received to the liquidator's remuneration report nor has the Company's solicitor filed a notice of ceasing to act. Remuneration of liquidator 1. Section 60-10 of the Insolvency Practice Schedule (Corporations) provides that the Court may make a determination specifying remuneration that an external administrator of a company is entitled to receive for necessary work properly performed by the external administrator in relation to the external administration. Section 60-12 lists matters to which the Court must have regard in making such a determination. 60-12 Matters to which the Court must have regard In making a remuneration determination … the Court must have regard to whether the remuneration is reasonable, taking into account any or all of the following matters: (a) the extent to which the work by the external administrator was necessary and properly performed; (b) the extent to which the work likely to be performed by the external administrator is likely to be necessary and properly performed; (c) the period during which the work was, or is likely to be, performed by the external administrator; (d) the quality of the work performed, or likely to be performed, by the external administrator; (e) the complexity (or otherwise) of the work performed, or likely to be performed, by the external administrator; (f) the extent (if any) to which the external administrator was, or is likely to be, required to deal with extraordinary issues; (g) the extent (if any) to which the external administrator was, or is likely to be, required to accept a higher level of risk or responsibility than is usually the case; (h) the value and nature of any property dealt with, or likely to be dealt with, by the external administrator; (i) the number, attributes and conduct, or the likely number, attributes and conduct, of the creditors; (j) if the remuneration is worked out wholly or partly on a time-cost basis--the time properly taken, or likely to be properly taken, by the external administrator in performing the work; (k) whether the external administrator was, or is likely to be, required to deal with one or more controllers, or one or more managing controllers; (l) if: (i) a review has been carried out under Subdivision C of Division 90 (review by another registered liquidator) into a matter that relates to the external administration; and (ii) the matter is, or includes, remuneration of the external administrator; the contents of the report on the review that relate to that matter; (m) any other relevant matters. 1. The principles which govern an application to determine 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] NSWCA 38 per Bathurst CJ at [54]-[60] (with whom Beazley P, Gleeson JA and Beach AJA agreed) and Barrett JA at [71]; In the matter of Plutus Payroll Australia Pty Ltd (in liquidation) [2018] NSWSC 1092 at [14]-[15] per Black J. In short: 1. An administrator or liquidator is entitled to reasonable remuneration for their services and bears the onus of establishing that the remuneration sought is fair and reasonable. 2. The Court must bring an independent mind to bear on the question whether the remuneration is fair and reasonable. 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. 3. There is a need for proportionality between the cost of the work done and the value of the services provided. However, some work by a liquidator may not generate a return to creditors but is nonetheless necessary. 4. Relevant considerations include the complexity of the liquidation and the level of responsibility taken on by the liquidator. 1. Many of the matters listed in section 60-12 are not applicable here, as the work was done over a short period of time and was not complex. The remuneration report indicates that fees of $2,950.83 were attributable to attending at Court on 21 May 2018 and 28 May 2018 and preparing to issue a Report to Creditors in the event that the Company's application to terminate the winding up was not successful. The work appears to have been necessary and properly performed. The Report to Creditors took 3.5 hours to prepare and was 47 pages long. The time taken to prepare it appears reasonable. 2. However, a liquidator's remuneration does not include disbursements: In the matter of Stockford Limited (subject to Deed of Company Arrangement); (2005) 52 ACSR 279; [2004] FCA 1682 at [50] per Finkelstein J. As Brereton J explained In the matter of Sakr Nominees Pty Ltd [2016] NSWSC 709 at [8]: (footnotes omitted) Ordinarily, the Court approval of a liquidator's remuneration does not include disbursements: the liquidator's right to indemnity in respect of out-of-pocket expenses depends on the general law relating to a trustee's right of indemnity. Whether, and to what extent, a liquidator is entitled to recoup a disbursement from the estate, ordinarily arises upon the taking of a trustee's accounts, or upon a misfeasance summons arising from a liquidator's accounts. Sometimes, a liquidator may seek a direction that he would be justified in paying certain disbursements in order to obtain prior protection in respect of such a disbursement. This was not the subject of the appeal in In the matter of Sakr Nominees Pty Ltd [2017] NSWCA 38, nor further considered when the matter was remitted to Black J in In the matter of Sakr Nominees Pty Ltd [2017] NSWSC 668. See also In the matter of AAA Financial Intelligence Ltd (in liquidation) (No 2) [2014] NSWSC 1270 at [14]-[15]; Austin & Black Annotations to the Corporations Act (LexisNexis, looseleaf) at [5.IPSC.60] citing Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96; 16 ACLC 1653; GIS Electrical Pty Ltd v Melson [2001] WASC 314 at [55]; In the matter of Stockford Limited (subject to Deed of Company Arrangement); (2005) 52 ACSR 279; [2004] FCA 1682 at [50]-[51]; Re Huxtable Timeshare Resort Club Ltd (2010) 187 FCR 13; [2010] FCA 673 at [36]-[37]; Deputy Commissioner of Taxation v Starpicket Pty Ltd (No 2) [2013] FCA 699 at [15] cf. Re Solfire Pty Ltd (in liq) (No 2) [1999] 2 Qd R 182; (1998) 16 ACLC 1156. 1. As such, I cannot 'approve' the legal fees of $3,068.76 as a disbursement under section 60-12. In any event, Gleeson JA has already made a costs order in respect of those costs. It may be that the liquidator would seek to vary his Honour's order and, instead, seek his costs in a fixed sum under the Uniform Civil Procedure Rules. Orders 1. I make the following orders 1. Pursuant to rule 6.24 of the Uniform Civil Procedure Rules 2005 (NSW), Jason Lloyd Porter of SV Partners Insolvency (NSW) Pty Ltd is joined to these proceedings as the second defendant. 2. Pursuant to section 60-10 of the Insolvency Practice Schedule (Corporations), determine that Mr Porter is entitled to receive remuneration for necessary work properly performed in relation to the external administration of the first defendant in the amount of $2,950.83. 3. First defendant to pay the second defendant's costs of the Interlocutory Process filed on 28 October 2018. 4. Grant liberty to the second defendant within 14 days to seek a gross sum costs order pursuant to section 98(4)(c) of the Civil Procedure Act 2005 (NSW), of either: 1. the second defendant's costs from 17 May 2018 to 28 May 2018; 2. the second defendant's costs of the Interlocutory Process filed on 28 October 2018. ********** 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 March 2019