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Purchas, in the matter of RSP Group Pty Limited (inliq) [2006] FCA 1329 (16 October 2006)

Last Updated: 16 October 2006

FEDERAL COURT OF AUSTRALIA

Purchas, in the matter of RSP Group Pty Limited (in liq) [2006] FCA 1329

CORPORATIONS – whether funds held pursuant to terminated deed of company arrangement are held for the benefit of deed creditors or property of the company in liquidation – direction that the funds be administered as the property of the company in liquidation

CORPORATIONS – practice and procedure – application by liquidators/former administrators for increase in remuneration as administrators – proper parties – contradictor necessary

Corporations Act 2001 (Cth), s 449E, s 511

Purchas, in the matter of Estore Pty Limited (in liq) [2006] FCA 1222 followed
Purchas, in the matter of Worldwide Workers Pty Limited (in liq) [2006] FCA 1223 followed
Deputy Commissioner of Taxation v ACN 080 122 587 Pty Ltd [2005] NSWSC 1247 cited
Re Currabubula Holdings Pty Ltd (in liq); Ex parte Lord (2004) 48 ACSR 734; (2004) 22 ACLC 858 cited

IN THE MATTER OF RSP GROUP PTY LIMITED (IN LIQUIDATION) ACN 085 978 552 AND THE CORPORATIONS ACT 2001 (CTH)
IAN JAMES PURCHAS AND RONALD JOHN DEAN-WILLCOCKS v RSP GROUP PTY LIMITED (IN LIQUIDATION) ACN 085 978 552
NSD 1467 OF 2006

GYLES J
16 OCTOBER 2006
SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1467 OF 2006

IN THE MATTER OF RSP GROUP PTY LIMITED (IN LIQUIDATION) ACN 085 978 552 AND THE CORPORATIONS ACT 2001 (CTH)

BETWEEN:	IAN JAMES PURCHAS AND RONALD JOHN DEAN-WILLCOCKSPlaintiffs
AND:	RSP GROUP PTY LIMITED (IN LIQUIDATION) ACN 085 978 552Defendant

JUDGE:	GYLES J
DATE OF ORDER:	16 OCTOBER 2006
WHERE MADE:	SYDNEY

THE COURT:

1. Directs that the plaintiffs as liquidators of RSP Group Pty Limited (in liquidation) are justified in applying and distributing the monies consisting of the Deed Fund referred to in paragraph 30 of the affidavit of Ian James Purchas sworn 1 August 2006 as property of RSP Group Pty Limited (in liquidation) in the due course of winding up.
2. Orders that the costs of the application for the said direction be paid out of the assets of RSP Group Pty Limited (in liquidation) as an expense of the winding up on the basis that this application has been heard together with proceedings NSD 1364 of 2006 (In the matter of Estore Pty Limited (in liquidation) ACN 075 051 295 and the Corporations Act 2001 (Cth); Ian James Purchas and Ronald John Dean-Willcocks v Estore Pty Limited (in liquidation) ACN 075 051 295) and NSD 1481 of 2006 (In the matter of Worldwide Workers Pty Limited (in liquidation) ACN 091 484 025 and the Corporations Act 2001 (Cth); Ian James Purchas and Nicholas Craig Malanos v Worldwide Workers Pty Limited (in liquidation) ACN 091 484 025).
3. Orders that the balance of the application stand over to a date to be fixed.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 1467 OF 2006

IN THE MATTER OF RSP GROUP PTY LIMITED (IN LIQUIDATION) ACN 085 978 552 AND THE CORPORATIONS ACT 2001 (CTH)

BETWEEN:	IAN JAMES PURCHAS AND RONALD JOHN DEAN-WILLCOCKSPlaintiffs
AND:	RSP GROUP PTY LIMITED (IN LIQUIDATION) ACN 085 978 552Defendant

JUDGE:	GYLES J
DATE:	16 OCTOBER 2006
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1 This is one of three cases, heard together, which raised the same question for determination – whether certain funds form assets of a company in liquidation for distribution in the liquidation of that company, or whether those funds constitute an asset held pursuant to a terminated deed of company arrangement for the benefit of deed creditors. This case raises another question – whether approval can, or should, be given to an increase in the remuneration of the deed administrator post liquidation.

FIRST QUESTION

2 I adopt in substance the summary by counsel for the plaintiffs of the material facts appearing from the evidence.
3 On 22 July 2005 Mr Purchas and Mr Dean-Willcocks were appointed as administrators of RSP Group Pty Limited pursuant to s 436A of the Corporations Act 2001 (Cth) (the Act).
4 On 9 September 2005, a Deed of Company Arrangement was executed pursuant to a resolution of the creditors in accordance with s 439C(a) of the Act at the meeting convened under s 439A of the Act (the DOCA).
5 The Deed Fund under the DOCA was constituted by cl 5 and cl 6 of the DOCA which provided, inter alia, for RSP to pay certain funds to the administrators at certain times. The Deed Fund also included the cash surplus from trading by the administrators. Pursuant to cl 6 of the DOCA, the Retained Cash in the administration account as at the date of execution of the DOCA formed part of the Deed Fund.
6 Clause 5.6(a) of the DOCA provided that:

‘The Administrators shall hold the Deed Fund for the benefit of the Administrators and for those Creditors who become Participating Creditors in accordance with the terms of this Deed.’

Pursuant to cl 5.6(b) of the DOCA, any monies paid by RSP to the administrators were not refundable.

7 The administrators received certain amounts (including the sum of $618 662.28 from RSP) and made certain payments in partial compliance with the DOCA.
8 On 12 April 2006, the creditors passed a resolution at a meeting convened pursuant to s 445F of the Act that the DOCA be terminated and RSP be wound up.
9 The current balance of the Deed Fund is the sum of $331 477.00. The likely dividend to participating deed creditors, if the Deed Fund is distributed to them on the terms set out in the DOCA, is estimated at approximately 9.3 cents in the dollar. If the Deed Fund is included as an asset available for distribution to all creditors of RSP, the anticipated dividend to ordinary creditors is approximately 14 cents in the dollar.
10 The relief sought is as follows:

(1) Directions pursuant to s 447D(2) and/or s 511 of the Act on the application and distribution of the Deed Fund as referred to in paragraph 30 of the affidavit of Ian James Purchas pursuant to the DOCA entered into by the defendant dated 9 September 2005.
(2) A declaration, pursuant to s 447D(2) and/or s 511(2) of the Act, that the Deed Fund is to be distributed to the Participating Creditors on the terms set out in the DOCA entered into by the defendant dated 9 September 2005.
(3) Alternatively, a declaration, pursuant to s 447D(2) and/or s 511(2) of the Act, that the Deed Fund is available for distribution as part of the property of the defendant in the due course of the winding up of the defendant in accordance with the relevant provisions of Pt 5.6 of the Act.

11 The material facts in Purchas, in the matter of Estore Pty Limited (in liq) [2006] FCA 1222 and Purchas, in the matter of Worldwide Workers Pty Limited (in liq) [2006] FCA 1223 are indistinguishable in substance from this case. Directions will be given and an order for costs will be made for the same reasons as those appearing in the aforementioned cases.

SECOND QUESTION

12 On 5 September 2005, at the second meeting of creditors convened pursuant to s 439A of the Act, a resolution was passed in the following terms

‘3. That the remuneration of the Deed Administrators from the date of execution of the deed of company arrangement to completion be approved. The remuneration is to be fixed in respect of the Deed Administrators, their employees and contractors at the hourly rates applicable and in accordance with the rates of charge issued from time to time by Star Dean-Willcocks, plus GST, and the Deed Administrators shall be authorised to draw such remuneration from time to time out of monies held by them to a limit of $20,000 (plus GST). Any further remuneration to be approved by creditors in general meeting.’

The remuneration of the administrators of the company up to the date of execution of the Deed had been approved by a separate resolution. The Chairperson and the proxy for the Chief Commissioner of State Revenue abstained from voting. Otherwise, the resolution was passed unanimously.

13 A schedule of the hourly rates of the Deed Administrators and their staff was circulated under cover of the notice convening the first meeting of creditors.
14 It is claimed that the time costs incurred by the Deed Administrators in the course of the deed administration totalled the sum of $38 632. The details of that calculation are in evidence.
15 A resolution concerning approval of the Deed Administrators’ additional remuneration was not put to the creditors at the meeting convened pursuant to s 445F of the Act, which led to the winding up.
16 The plaintiffs seek the following relief in this respect:

‘An order pursuant to sections 447A and/or 449E(2) of the Corporations Act 2001 (Cth) that the remuneration of the Deed Administrators be reviewed and increased in the sum of $20,000 (inclusive of GST) (Deed Administrators’ Remuneration).
An order that the Deed Administrators’ Remuneration be paid out of the Deed Fund prior to distribution to the Participating Creditors.
Alternatively, an order that the Deed Administrators’ Remuneration be paid out of the assets of the Company as a priority in the winding up of the Company in the priority specified in section 556 of the Corporations Act 2001 (Cth).’

17 Section 449E is in the following terms (so far as is relevant):

‘(1) The administrator of a company under administration, or of a deed of company arrangement, is entitled to:

(a) such remuneration as is fixed by a resolution of the company’s creditors passed at a meeting convened under section 439A, or under section 439A or 445F, as the case may be; or
(b) if no remuneration is so fixed--such remuneration as the Court fixes on the application of the administrator.

(2) Where remuneration is fixed under paragraph (1)(a), the Court may, on the application of the administrator or of an officer, member or creditor of the company:

(a) review the remuneration; and
(b) confirm, increase or reduce it.’

18 It is submitted that a liquidator, pursuant to s 9 of the Act, is ‘an officer’ of the company and so entitled to apply pursuant to s 449E(2) for an increase in the remuneration of an administrator. It is further submitted that an administrator can apply as such, notwithstanding that the administration has ended.
19 Whilst both propositions are of some novelty in circumstances such as the present, counsel is correct in submitting that there is some support to be derived from the decisions of Young CJ in Eq in Deputy Commissioner of Taxation v ACN 080 122 587 Pty Ltd [2005] NSWSC 1247 and Austin J in Re Currabubula Holdings Pty Ltd (in liq); Ex parte Lord (2004) 48 ACSR 734; (2004) 22 ACLC 858, at least so far as standing is concerned.
20 Even if the question of standing is solved, there is a clear conflict of interest. There is a direct contest between the interests of the former administrators, on the one hand, and those of the ordinary creditors of a company, on the other, so far as the increased remuneration is concerned. The natural representatives of creditors are the liquidators who are making the application. Even if the application is viewed as being made in their capacity as administrators, they are also the natural contradictors, namely the liquidators.
21 There are other issues to be faced. The first is whether the section contemplates that an administrator can or should seek an ex post facto increase in the fees approved. A second is whether it would be appropriate to exercise such a power, if it exists, where the administrators had neglected to obtain the appropriate authorisation of creditors pursuant to s 445F of the Act. A third is whether it is appropriate to regard time costing as the sole method of assessing proper remuneration. A fourth is whether ‘remuneration’ includes payment to employees and other outgoings of a firm of which the administrators are principals. A fifth is the method by which a court should assess the appropriateness of the detail of the particular claim for remuneration based upon time charging.
22 In my opinion, it is inappropriate that the orders sought should be considered in the absence of a contradictor representing the interests of unsecured creditors of the company. The matters to which I have adverted received scant, if any, attention in the authorities to which I was referred.
23 Orders will be made as to the first question. The proceeding will otherwise stand over to enable the plaintiffs to consider what they wish to do in relation to the second question.

I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles.

Associate:

Dated: 16 October 2006

Counsel for the Plaintiffs:	Ms V Whittaker

Solicitor for the Plaintiffs:	Kemp Strang

Date of Hearing:	21 August 2006

Date of Judgment:	16 October 2006

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2	I adopt in substance the summary by counsel for the plaintiffs of the material facts appearing from the evidence.
3	On 22 July 2005 Mr Purchas and Mr Dean-Willcocks were appointed as administrators of RSP Group Pty Limited pursuant to s 436A of the Corporations Act 2001 (Cth) (the Act).
4	On 9 September 2005, a Deed of Company Arrangement was executed pursuant to a resolution of the creditors in accordance with s 439C(a) of the Act at the meeting convened under s 439A of the Act (the DOCA).
5	The Deed Fund under the DOCA was constituted by cl 5 and cl 6 of the DOCA which provided, inter alia, for RSP to pay certain funds to the administrators at certain times. The Deed Fund also included the cash surplus from trading by the administrators. Pursuant to cl 6 of the DOCA, the Retained Cash in the administration account as at the date of execution of the DOCA formed part of the Deed Fund.
6	Clause 5.6(a) of the DOCA provided that:

7	The administrators received certain amounts (including the sum of $618 662.28 from RSP) and made certain payments in partial compliance with the DOCA.
8	On 12 April 2006, the creditors passed a resolution at a meeting convened pursuant to s 445F of the Act that the DOCA be terminated and RSP be wound up.
9	The current balance of the Deed Fund is the sum of $331 477.00. The likely dividend to participating deed creditors, if the Deed Fund is distributed to them on the terms set out in the DOCA, is estimated at approximately 9.3 cents in the dollar. If the Deed Fund is included as an asset available for distribution to all creditors of RSP, the anticipated dividend to ordinary creditors is approximately 14 cents in the dollar.
10	The relief sought is as follows:

13	A schedule of the hourly rates of the Deed Administrators and their staff was circulated under cover of the notice convening the first meeting of creditors.
14	It is claimed that the time costs incurred by the Deed Administrators in the course of the deed administration totalled the sum of $38 632. The details of that calculation are in evidence.
15	A resolution concerning approval of the Deed Administrators’ additional remuneration was not put to the creditors at the meeting convened pursuant to s 445F of the Act, which led to the winding up.
16	The plaintiffs seek the following relief in this respect:

18	It is submitted that a liquidator, pursuant to s 9 of the Act, is ‘an officer’ of the company and so entitled to apply pursuant to s 449E(2) for an increase in the remuneration of an administrator. It is further submitted that an administrator can apply as such, notwithstanding that the administration has ended.
19	Whilst both propositions are of some novelty in circumstances such as the present, counsel is correct in submitting that there is some support to be derived from the decisions of Young CJ in Eq in Deputy Commissioner of Taxation v ACN 080 122 587 Pty Ltd [2005] NSWSC 1247 and Austin J in Re Currabubula Holdings Pty Ltd (in liq); Ex parte Lord (2004) 48 ACSR 734; (2004) 22 ACLC 858, at least so far as standing is concerned.
20	Even if the question of standing is solved, there is a clear conflict of interest. There is a direct contest between the interests of the former administrators, on the one hand, and those of the ordinary creditors of a company, on the other, so far as the increased remuneration is concerned. The natural representatives of creditors are the liquidators who are making the application. Even if the application is viewed as being made in their capacity as administrators, they are also the natural contradictors, namely the liquidators.
21	There are other issues to be faced. The first is whether the section contemplates that an administrator can or should seek an ex post facto increase in the fees approved. A second is whether it would be appropriate to exercise such a power, if it exists, where the administrators had neglected to obtain the appropriate authorisation of creditors pursuant to s 445F of the Act. A third is whether it is appropriate to regard time costing as the sole method of assessing proper remuneration. A fourth is whether ‘remuneration’ includes payment to employees and other outgoings of a firm of which the administrators are principals. A fifth is the method by which a court should assess the appropriateness of the detail of the particular claim for remuneration based upon time charging.
22	In my opinion, it is inappropriate that the orders sought should be considered in the absence of a contradictor representing the interests of unsecured creditors of the company. The matters to which I have adverted received scant, if any, attention in the authorities to which I was referred.
23	Orders will be made as to the first question. The proceeding will otherwise stand over to enable the plaintiffs to consider what they wish to do in relation to the second question.