Liquidator Entitled to Remuneration and Interim Payment in Corporate Insolvency Case

The liquidator of a company in liquidation applied for the assessment of his remuneration claim and an interim payment. The Court ordered the claim to be referred to a registrar for assessment and granted an interim payment contingent on an undertaking by the liquidator to repay any excess if the final assessment was lower.

Supreme Court New South Wales

Medium Neutral Citation: [COMPANY] & [NAME] v [COMPANY] (in liquidation) & [NAME] [2012] NSWSC 404 Hearing dates: 23 April 2012 Decision date: 27 April 2012 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Liquidator's remuneration referred to registrar for assessment and report to the Court - Orders for the payment of interim remuneration to be made contingent on an undertaking given by the special purpose liquidator to the Court. Catchwords: CORPORATIONS - Winding up - Application by special purpose liquidator for claim to remuneration to be referred to registrar for assessment and quantification - Application for interim payment pending determination. Legislation Cited: - Corporations Act 2011 (Cth) ss 511, 499(3) Cases Cited: - City & Suburban Pty Ltd v Smith (1998) 28 ACSR 328 at 339 - [NAME] (liquidator) [COMPANY] (in liq) [2010] FCA 1371 - [COMPANY] v [COMPANY] [2008] NSWSC 1335 - [COMPANY] v [COMPANY] [2009] NSWSC 822 - [COMPANY] v [COMPANY] [2010] NSWSC 1120; (2010) 80 ACSR 11 - [COMPANY] v [COMPANY] (Unreported, Supreme Court of New South Wales, 22 February 2011, Barrett J) - [COMPANY] (in liq) (Unreported, Supreme Court of New South Wales, 14 March 2011, Ward J) - [NAME] (as liquidators of [COMPANY]) [2005] NSWSC 557; (2005) 221 ALR 320; 189 FLR 467 Category: Interlocutory applications Parties: [COMPANY] (First Plaintiff) [COMPANY] (Second Plaintiff) [COMPANY] (Third Plaintiff) [COMPANY] (Fourth Plaintiff) [COMPANY] (in liquidation) (First Defendant) [NAME] (Second Defendant) [NAME] (Third Defendant) Representation: Counsel: [redacted] Solicitor: [redacted] File Number(s): 03/86446

Judgment 1Mr [NAME], the Special Purpose Liquidator ("[NAME]") of [COMPANY] (in liquidation) ("[NAME]") seeks an order that his "unfunded" remuneration for the period 1 October 2011 to 9 March 2012 be referred to a registrar for assessment and quantification and the registrar report to the Court constituted by a judge the total amount that would be the proper remuneration for [NAME] for that period. The reference to "unfunded" work is to work which has not been funded by a litigation funder, by contrast with "funded" work which has been funded by that funder in respect of certain proceedings sought to be initiated by [NAME]. 2The [NAME] also seeks an order that, pending the determination of his remuneration by that process, he be paid an interim payment quantified as two-thirds of his claim for unfunded remuneration for the relevant period. [NAME] also seeks an order that that payment be paid out of the assets of [NAME] within seven days, although [NAME], who appeared for [NAME], indicated that [NAME] would not object to that order providing for payment within a period of 14 days. [NAME] offers an undertaking that, if the amount of remuneration determined for his work is less than the amount of the interim payment, he will repay the difference to [NAME]. 3The [NAME]'s application is supported by an affidavit of [NAME] which refers to various steps which have been taken by [NAME]. [NAME]'s affidavit also refers to the existence of proceedings commenced by [COMPANY] on 19 March 2010 ("removal proceedings") which seek relief including his removal as [NAME] of [NAME] and indicates the present status of those proceedings. [NAME] gives evidence of the rates at which his remuneration claim has been calculated, which are the same as those which have previously been approved by the [NAME] ("[NAME]") of [NAME] for the period of his work from 1 August 2008 to 30 April 2009 and fixed by the Court for the period 1 May 2009 to 31 December 2010. [NAME]'s affidavit exhibited a copy of his remuneration report for the relevant period. 4I was advised that [NAME] had given notice, albeit only the business day before this application was listed before me, to members of the [NAME] of the application and that such members had been represented at such applications in the past. The matter was called and there was no appearance in respect of this application by members of the [NAME]. Application for [NAME]'s approval of unfunded remuneration 5The [NAME] had previously sought approval of his claim for remuneration from the [NAME], initially seeking to convene a [NAME] meeting on 30 March 2012 which was then adjourned to 10 April 2012 and reconvened by telephone on 19 April 2012. At the telephone meeting on 19 April 2012, the majority of [NAME] members present voted in favour of a resolution concerning payment of [NAME]'s funded remuneration for the relevant period. All three [NAME] members who attended that meeting voted against a resolution to approve [NAME]'s unfunded remuneration. [NAME] indicated that they would not pass a resolution approving [NAME]'s unfunded remuneration even if he reduced his claim by a specified percentage in order to avoid the costs of making an application to the Court and the resulting delay in payment. [NAME] advised members of the [NAME] that he would be making an application to the Court to determine his unfunded resolution; [NAME] of the [NAME] members present indicated that he agreed with a two-thirds interim payment (or at least an application to the Court for approval of such a payment) if [NAME]'s application to approve his unfunded remuneration was referred to a registrar for a report; a second [NAME] member indicated she had a neutral stance and it was a matter for [NAME] whether he sought an interim payment; and a third [NAME] member indicated that he opposed an interim payment. Referral to the registrar 6In [NAME] v [COMPANY] [2008] NSWSC 1335 at [31], Barrett J observed that a liquidator has a: "clear entitlement to remuneration and a clear entitlement to have his or her remuneration fixed. There is no expectation that a liquidator will act gratuitously. The right to remuneration is not subject to negotiation or to discretionary withdrawal. The only question that can ever be contentious is the amount of the remuneration." [ADDRESS] may determine a liquidator's remuneration under s 511 of the Corporations Act 2001 (Cth) where the process for approval of that remuneration under s 499(3) of the Corporations Act has failed or become unworkable or where a [NAME] has stated that it is unable to approve that remuneration: [NAME] (as liquidators of [COMPANY]) [2005] NSWSC 557; (2005) 221 ALR 320; 189 FLR 467; [COMPANY] v [COMPANY] [2009] NSWSC 822; [COMPANY] (in liq) (Unreported, Supreme Court of New South Wales, 14 March 2011, Ward J). 7In my view, that process for approval of [NAME]'s remuneration has failed in respect of the relevant period, given the views expressed by the [NAME] at the meeting held on 19 April 2012. I consider that an order should therefore be made referring [NAME]'s application for remuneration to the registrar to deal with the details of assessment and quantification on the basis that he or she will report back to the Court constituted by a judge, who make then make an order under s 511 of the Corporations Act, consistent with the course previously taken [COMPANY] v [COMPANY] [2010] NSWSC 1120; (2010) 80 ACSR 11 at [80]. Approval of interim payment 8The Court may authorise an interim payment of remuneration under s 511 of the Corporations Act: [NAME] (liquidator); [COMPANY] (in liq) [2010] FCA 1371; [COMPANY] v [COMPANY] (Unreported, Supreme Court of New South Wales, 22 February 2011, Barrett J) at [7]ff. Such an order is not made for payment "on account" of future remuneration and is instead an award of remuneration on the basis of an undertaking made by a liquidator to the Court that he or she will repay the excess if the overall assessment results in a total smaller than the interim amount. [NAME]'s evidence is that interest does not accrue on his remuneration while the determination of the amounts payable are pending, because no invoice is drawn for that remuneration until it is approved, and there is a cost to his firm in funding the costs of his administration involving payment of interest on the firm's facilities with its bankers. This factor strongly supports an order for interim payment pending the determination of [NAME]'s remuneration. 9However, a particular issues arises as to whether the removal proceedings generally, or the specific orders sought in them, have relevance to the application for an interim payment. [NAME] properly drew to my attention the fact that an order is sought in those proceedings that [NAME]'s costs of the removal proceedings not be paid by [NAME] and approximately 34% of [NAME]'s remuneration claim for this period is identified as relating to remuneration attributable to those proceedings. Other amounts relate to other strategy and legal matters which are not identified as relating to the removal proceedings. 10I do not consider that the existence of the removal proceedings is itself an impediment to making an interim order for payment of an appropriate proportion of [NAME]'s remuneration. [NAME] contends that an order for his removal made in the removal proceedings would not impact on his entitlement to remuneration: City & Suburban Pty Ltd v Smith (1998) 28 ACSR 328 at 339. [COMPANY] v [COMPANY] [2010] NSWSC 1120 at [23], Barrett J did not accept a submission made by members of the [NAME] that the Court should not approve a remuneration application by [NAME] because the removal proceedings were then pending, although I note that the remuneration then in issue related to periods prior to commencement of the removal proceedings. His Honour observed at [23] that: "There was, at an earlier stage, a submission that the remuneration questions should await the trial of pending proceedings in which an order for the removal of the special purpose liquidator is sought ... I do not regard that as an appropriate course. There is no clear connection between the two matters. The special purpose liquidator is entitled to have the assistance of the court in the matter of the quantification of his proper remuneration for past services regardless of the pendency of the other proceedings". His Honour later made an interim payment order in respect of two-thirds of that remuneration claim: [COMPANY] v [COMPANY] (Unreported, Supreme Court of New South Wales, 22 February 2011, Barrett J). Three further orders for interim payments pending the Court's assessment by a registrar of [NAME]'s claims for remuneration were made by Ward J on 14 March 2011, by Hammerschlag J on 14 June 2011 and by Barrett J on 19 December 2011 in respect of periods which were in whole or in part after the commencement of the removal proceedings. 11However, I consider that the question whether the liquidator should be paid an interim payment of remuneration attributable to the removal proceedings raises a different question from whether he should be paid an interim payment generally. The liquidator's receipt of an interim payment of remuneration attributable to the removal proceedings is potentially inconsistent with the orders sought in those proceedings that he not be indemnified for the costs of them. I do not consider that the plaintiffs in the removal proceedings should be placed in a worse position by reason of that interim payment than they would have been had it not been made, if they are ultimately successful in obtaining an order that [NAME] should not be entitled to remuneration in respect of the removal proceedings. In particular, such an interim payment should not be made in a way which leaves those persons to establish, in contested proceedings, a right to repayment of an amount of remuneration referable to the removal proceedings, if the Court holds (in the removal proceedings) that [NAME] is not entitled to that payment in respect of that remuneration. 12Mr [NAME] acknowledged, in submissions, the possibility that an interim payment could be conditional on [NAME] offering an undertaking that he repay the amount of that interim payment attributable to his remuneration in the removal proceedings, if the Court were to find (in the removal proceedings) that he was not entitled to such remuneration, although [NAME] indicated he did not have instructions as to that matter. I consider that an order for interim payment should only be made in respect of [NAME]'s remuneration referable to the removal proceedings if [NAME] is prepared to offer such an undertaking. If [NAME] does not wish to offer that undertaking, I would propose to make an order for interim payment excluding his remuneration referable to the removal proceedings. Orders 13I will, subject to [NAME] by his Counsel offering the undertakings noted below, make the orders set out below.

1. There be referred to a registrar, for assessment and quantification, [NAME]'s claim for unfunded remuneration for work done in the period 1 October 2011 to 9 March 2012.

2. The registrar report to the court constituted by a judge the total amount that would be the proper remuneration of [NAME] claimed for the said work in the said period.

3. Pending the determination of [NAME]'s remuneration claim for work done in the said period, there be paid as remuneration of [NAME] the sum of $131,029.33 plus GST (being the equivalent of two-thirds of [NAME]'s claim for remuneration for the work done in the period 1 October 2011 to 9 March 2012).

4. The payment referred to in Order 3 be paid out of the assets of [NAME] within 14 days of the making of this order.

5. The proper costs and expenses of [NAME] in making this application be paid out of the assets of [NAME]. Note the undertakings of [NAME] given to the Court that:

6. If the amount of remuneration determined for the said work is less than the amount of $131,029.33 plus GST, [NAME] will repay the difference to [NAME].

7. If the Court finds, in proceedings No 71799 of 2010 brought by [COMPANY], that the liquidator is not entitled to remuneration in respect of the conduct of those proceedings ("Removal Proceedings Remuneration"), [NAME] will repay the amount of the payment made pursuant to order 3 constituting Removal Proceedings Remuneration. In these orders: [NAME] means [COMPANY] (In Liquidation) (ACN [PHONE]). [NAME] means the Special Purpose Liquidator of [NAME]. 14I will hear [NAME] as to whether such undertakings are now offered.

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