Supreme Court New South Wales Medium Neutral Citation: In the matter of Banksia Securities Limited (in liq) (recs and mgrs apptd) [2019] NSWSC 1899 Hearing dates: 16 December 2019 Date of orders: 16 December 2019 Decision date: 16 December 2019 Jurisdiction: Equity - Corporations List Before: Black J Decision: The remuneration of the special purpose receivers for the period 23 August 2018 to 30 September 2019 is approved and fixed in the sum of $315,273 plus GST. Order made discharging one of two special purpose receivers. Catchwords: CORPORATIONS – external administration – application to approve the remuneration of special purpose receivers for work already performed –whether the amount of remuneration claimed is reasonable and whether it is to be calculated on a time-charged basis – application to discharge one of two special purpose receivers. Legislation Cited: - Corporations Act 2001 (Cth) s 283HB - Uniform Civil Procedure Rules 2005 (NSW) r 26.4 Cases Cited: - Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) [2017] NSWSC 540 - Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) [2019] NSWSC 136 - Re Say Enterprises Pty Ltd [2018] NSWSC 396 - Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38; (2017) 93 NSWLR 459 Category: Procedural and other rulings Parties: The Trust Company (Nominees) Limited (Plaintiff) Representation: Counsel: J Redwood (Special Purpose Receivers) Solicitors: Maddocks (Special Purpose Receivers) File Number(s): 2015/252832 Judgment – ex tempore (revised 16 december 2019) 1. By Interlocutory Process filed on 25 November 2019, Messrs Lindholm and McCluskey apply, first, for an order that their remuneration as special purpose receivers ("SPRs") of Banksia Securities Limited (in liq) (recs and mgrs apptd) ("BSL") be approved and fixed, for the period 23 August 2018 to 30 September 2019, in the amount of $315,273 plus GST. Second, an order is sought discharging Mr McCluskey from acting as special purpose receiver of BSL, where he was previously appointed by the Court with Mr Lindholm to that position, until further order, in connection with his transition to retirement. I will return to that application below. Background and affidavit evidence 1. I have set out the background to their appointment in several previous judgments, including my judgment earlier this year in Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) [2019] NSWSC 136. I do not need to repeat the description in that judgment of the nature of the business conducted by BSL, the difficulties which arose in that business, and the subsequent proceedings in respect of that business. As I noted in that judgment, orders were made by the Court initially in September 2015, and varied in February 2016, appointing Mr Lindholm and McCluskey as joint and several special purpose receivers of specified property of BSL, including its rights and entitlements in proceedings ("BSL proceedings"). Those proceedings were subsequently pursued by the SPRs, and a substantial settlement in respect of one defendant has been obtained and a settlement in respect of a second defendant has been agreed, and an application for Court approval of that settlement will be heard early next year in the Supreme Court of Victoria. Other proceedings ("Bolitho proceedings") were brought by a third party as a class action, in parallel to the BSL proceedings brought by the SPRs, and a range of difficulties have arisen in respect of those proceedings and particularly a funder's claim for remuneration and claims for legal costs in those proceedings, to which I refer below. 2. Turning now to the evidence, the SPRs rely on the affidavit dated 22 November 2019 of Mr Lindholm which addresses, inter alia, why this remuneration application deals with a longer period than has been the subject of previous claims. Mr Lindholm also refers to Mr McCluskey's proposed ceasing to act as SPR in connection to his retirement, to which I will refer below. He refers to the SPRs' claim for remuneration, and refers to the work done in respect of the remuneration that is claimed, outlining the tasks involved in general terms, and referring also to more detailed substantiating material in an exhibit to his affidavit. Mr Lindholm, in particular, refers to several areas of work, including, first, issues arising from a special leave application brought by the funder of the Bolitho proceedings to the High Court of Australia, in which the SPRs participated and put a position which was to the advantage of debentureholders, so far as they resisted an application by that funder to seek to set aside the earlier settlement of the BSL proceedings and the associated settlement of the Bolitho proceedings. 3. Mr Lindholm also refers to proceedings in the Supreme Court of Victoria, subsequent to a decision by the Court of Appeal overturning an approval of funding claimed by the funder of the Bolitho proceedings. I have had regard to the affidavit evidence led by Mr Lindholm in that respect and to the detailed material contained in exhibits to his affidavit in respect of those issues. I note that a number of the issues have been addressed in judgments of the Supreme Court of Victoria, and I do not consider it necessary or appropriate to say anything more than as to those issues, which are plainly controversial and likely to be the subject of further judgments of that Court. I do note that, as Mr Redwood who appears for the SPRs points out, no criticism has been advanced of the SPRs in respect of these matters, which do not raise issues beyond those which I addressed in Re Banksia Securities Ltd above. Mr Lindholm's evidence is that the SPRs will seek to assist the Supreme Court of Victoria, as necessary, in respect of the issues that have arisen relating to the Bolitho proceedings. 4. Mr Lindholm also refers to the steps that were taken, after an application brought by the funder of the Bolitho proceedings for leave to appeal to the High Court had been determined, and a distribution to debentureholders was possible, to bring about that distribution. The SPRs were appointed by the Supreme Court of Victoria, over the opposition of the funder and legal representatives in the Bolitho proceedings, to make that distribution. Additional costs have been incurred by the SPRs in making that distribution, although those costs were, on any view, significantly less than those that had been foreshadowed by the funder and legal representatives of the class had they made such a distribution. 5. Mr Lindholm also refers to the conduct of the balance of the BSL proceedings, which have now been resolved by a further settlement against the remaining defendant, subject, as I noted above, to approval of that settlement by the Supreme Court of Victoria. Mr Lindholm also addresses the position in respect of funds that are still held by the SPRs in respect of the proceedings. It is plainly necessary that an amount be retained, given the SPRs' necessary involvement in issues that remain to be determined in the Supreme Court of Victoria in respect of the Bolitho proceedings. 6. Mr Lindholm notes that the remuneration now claimed by the SPRs has been unanimously approved by the committee of inspection. That is a relevant matter, although it does not displace the need for Court approval. Mr Lindholm also expresses the view that the remuneration claimed by the SPRs has been properly and necessarily incurred, is reasonable, and the work that has been performed has been performed efficiently and capably by staff at an appropriate level of experience. Plainly, Mr Lindholm's view as to those matters is not determinative, and the Court needs to form its own view as to those matters. Nonetheless, it is important that Mr Lindholm be prepared to give such evidence. 7. An exhibit to Mr Lindholm's affidavit in turn contains remuneration reports which were provided to the committee for inspection in respect of the periods of remuneration that are the subject matter of this application, which each identify categories of work done in the often used, and useful, categories identified by ARITA, identifying the amount of time spent in respect of those matters, the nature of the work done by way of a broad description, and the amount of costs incurred. That exhibit also contains a summary of receipts and payment in the special purpose receivership including, importantly, settlement funds which have now been received in respect of the BSL proceedings, and an interim distribution to debentureholders in an amount of nearly $50 million. That distribution is interim, in the sense that a further distribution may be made, depending upon, inter alia, the outcome of matters which will be determined by the Supreme Court of Victoria in respect of the funder's claims to remuneration in respect of the Bolitho proceedings. 8. The exhibit to Mr Lindholm's affidavit also includes more detailed narratives of work done and costs incurred, which allows an identification of the staff members that performed work, the nature of the work done, and the distribution of the work. I have had regard to that information without, in accordance with the case law, undertaking an item by item review of it. I bear in mind that, as Mr Lindholm's evidence rightly recognises, the nature of the proceedings and the issues which have arisen in them as being such as to require a higher level of input from Mr Lindholm personally than would have been the case, had the proceedings been less complex, or the issues which had arisen in the Bolitho proceedings less serious than they potentially are. 9. I have also had regard to correspondence to which Mr Redwood has fairly drawn to my attention, where one representative of a noteholder has asked that matters relating to the conduct of the Bolitho proceedings, and issues arising in it, be drawn to the attention of the committee of inspection and, it appears, there may have been associated criticisms of the SPRs. The matters raised by that course are matters that I have addressed in my earlier judgment, and it does not seem to me that there is any reason either to alter the views that I expressed in that earlier judgment, or that those matters adversely impact upon this application. 10. The SPRs also rely on the affidavit dated 22 November 2019 of Mr McCluskey, which refers to the circumstances of his resignation, in connection with his retirement, and the anticipation that Mr Lindholm would continue as the sole special purpose receiver on Mr McCluskey's retirement. 11. The SPRs rely on an affidavit dated 13 December 2019 of Mr Samuel Kingston, a solicitor representing them, who refers to service of the material relating to this application on the Australian Securities and Investments Commission, which then requested further information concerning aspects of the application, and subsequently advised that it did not consider the application required regulatory intervention; did not oppose the orders that Mr McCluskey be discharged as special purpose receiver, and did not intend to appear at the hearing. Remuneration application 1. For the reasons noted in earlier judgments, the Court has jurisdiction to make the orders now sought approving the SPRs' remuneration under s 283HB of the Corporations Act 2001 (Cth), under r 26.4 of the Uniform Civil Procedure Rules 2005 (NSW) or in the Court's inherent jurisdiction. The principles applicable to an application of this kind have been summarised in earlier judgments, including that of Gleeson JA in Re Banksia Securities Ltd (in liq) (recs and mgrs apptd) [2017] NSWSC 540 and in my earlier judgments. I also bear in mind the principles applicable to an assessment of remuneration, as noted in earlier judgments dealing with remuneration of receivers, and those which have been recently identified by the Court of Appeal in dealing with the remuneration of liquidators: see, for example, Sanderson, as liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr [2017] NSWCA 38; (2017) 93 NSWLR 459 and Re Say Enterprises Pty Ltd [2018] NSWSC 396 at [6]. I adopt, without repeating, my summary of the relevant principles in Re Banksia Securities Ltd above at [9]ff. I also recognise the significance of proportionality in applications of this kind, and note that there is evidence led by the SPRs dealing with that matter to which I will refer below. 2. I am satisfied, having regard to the evidence led by the SPRs, that the work undertaken by the SPRs has been reasonably necessary, in a matter that has always involved significant complexity, having regard to the scope of the BSL proceedings, but has now become more complex in respect of issues arising in respect of the funders and their legal representatives in the Bolitho proceedings, which have a connection with the BSL proceedings so far as they ran in parallel and have settled together. It seems to me that the SPRs have an important role in protecting the debentureholders' interests in respect of inquiries as to those matters which are currently taking place in the Supreme Court of Victoria, and an equally important role in providing evidence and legal assistance to that Court in respect of those matters. I have no doubt that that role is properly incidental to the scope of the matters for which they were appointed by this Court. 3. It seems to me that the complexities of the issues with which the SPRs have been required to deal is well beyond the ordinary, and that they have accepted a significant degree of responsibility, and that in turn is reflected in a higher proportion of work done by Mr Lindholm and more senior staff. That is neither surprising nor inappropriate in the relevant circumstances. The extent of recoveries that have been achieved is in any event such that the remuneration claimed, both in this application, and across the applications that have been brought as a whole, represents a relatively small proportion of the recoveries. I am satisfied that time based remuneration is appropriate in the circumstances, and it is plainly significantly more favourable to debentureholders, as I noted in my earlier judgment, than a charge based on a proportion of recoveries. 4. For these reasons, I am satisfied that an order approving the remuneration of the SPRs for the relevant period should be made. Application to discharge Mr McCluskey as special purpose receiver 1. So far as the application to discharge Mr McCluskey from acting as special purpose receiver is concerned, I am satisfied that that order can appropriately be made, in circumstances of Mr McCluskey's pending retirement, and where Mr Lindholm has had the primary carriage of the special purpose receivership and will continue in that role. There will, in those circumstances, be no disadvantage to debentureholders from the retirement of Mr McCluskey, at a point that the BSL proceedings brought by the SPRs are substantially complete, although some work will plainly remain in respect of the issues that are presently the subject of consideration in the Supreme Court of Victoria. 2. I note, for completeness, that no application for the release of Mr McCluskey is sought at this point. That is plainly appropriate in circumstances that the SPRs' work is not complete, and further distributions may be made to debentureholders, depending upon the outcome of events. I recognise that Mr McCluskey also proposes to resign as a liquidator of BSL, but no further orders from the Court are sought or required in that respect. Orders 1. I make the following orders: 1. Order that the remuneration of the special purpose receivers for Banksia Securities Limited (in liq) (recs and mgrs apptd) for the period 23 August 2018 to 30 September 2019 be approved and fixed in the sum of $315,273 plus GST. 2. Discharge Mr Peter Damien McCluskey from acting as special purpose receiver of Banksia Securities Limited (in liq) (recs and mgrs apptd). 3. The exhibits be returned. ********** 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: 30 December 2019