FEDERAL COURT OF AUSTRALIA

611 Pty Ltd (in liq), in the matter of 611 Pty Ltd (in liq) (No 3) [2019] FCA 858

ORDERS

THE COURT ORDERS THAT:

1.    The second and third plaintiffs are justified in using the proceeds of sale of certain real property formerly owned by the first plaintiff in its capacity as trustee of the Zumbo Trust (being the real property contained in New South Wales Folio Identifiers 1/SP80721 and 2/SP80721 and also known as 1 & 1A Apollo Place, Lane Cove West NSW 2066), and surplus trading or other proceeds held by the second and third plaintiffs, in the following manner:

(a)    in payment of disbursements incurred by the second and third plaintiffs to date, including legal fees, in the amount of $156,350.46 (including GST); and

(b)    in payment of trading commitments of the first plaintiff as set out in Annexure JH7 to the affidavit of Justin Holzman sworn on 3 June 2019.

2.    Order 4 made on 8 March 2019 be varied by adding the following proviso after the words “until further order”:

provided that this order does not prohibit the second and third plaintiffs from paying liabilities incurred in the course of the liquidation and/or receivership of the first plaintiff out of the proceeds of sale of assets owned by the first plaintiff as trustee for the Zumbo Trust.

3.    The plaintiffs’ costs of and incidental to this application be costs in the winding up of the first plaintiff and such costs be paid from funds held by the first plaintiff as trustee.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

YATES J:

1    By an interlocutory process filed on 3 June 2019, the second and third plaintiffs seek an order in the nature of a direction that, as receivers, they are justified in distributing the proceeds of sale of certain real property formerly owned by the first plaintiff, and the surplus trading or other proceeds they hold, in payment of legal costs and disbursements they have incurred in the amount of $156,350.46 (including GST) and in paying certain itemised trading commitments in the amount of $839,096.65 (plus an amount yet to be assessed for payroll tax).

2    They also seek to vary Order 4 made on 8 March 2019, which was in these terms:

4.    The second and third plaintiffs not distribute any surplus proceeds of sale of trust assets other than as identified in Order 1 above until further order.

3    Finally, they seek an order that their costs in bringing the present application be costs in the first plaintiff’s winding up.

4    The background to the present application is set out in earlier reasons: 611 Pty Ltd (in liq), in the matter of 611 Pty Ltd (in liq) [2018] FCA 2018; 611 Pty Ltd (in liq), in the matter of 611 Pty Ltd (in liq) (No 2) [2019] FCA 341 (Reasons No 2). I will not repeat that background in these reasons, save to note that in Reasons No 2 I referred to the second and third plaintiffs’ application for a direction in respect of the payment of legal fees and disbursements they had incurred. At that time, I was not prepared to give a direction as to the payment of legal fees and disbursements because the evidence then before me went no further than specifying an unparticularised and unsubstantiated global amount. Appropriate evidence has now been provided, as I will explain below.

5    When the present application first came before the Court for case management on 7 June 2019, the second and third plaintiffs, at the suggestion of the Australian Taxation Office (the Commissioner of Taxation is the largest creditor in the first plaintiff’s winding up), sought and obtained the following orders:

1.    Any person seeking to be heard as an interested party in relation to the plaintiffs’ Interlocutory Process filed on 3 June 2019 be required to notify the solicitors for the second and third plaintiffs by 17 June 2019.

2.    The plaintiffs’ Interlocutory Process be listed for case management or hearing if practicable on 24 June 2019 at 9.15 am, with an estimate of 30 minutes.

3.    The plaintiffs give notice of these orders to all creditors of the first plaintiff and to the Australian Securities and Investments Commission, such notice to be sent by 5.00 pm on 11 June 2019.

4.    The plaintiffs may give the notice referred to in Order 3 by way of email to those creditors for whom the plaintiffs hold email addresses.

6    These orders were made even though there was evidence before the Court that the first plaintiff’s known creditors and the Australian Securities and Investments Commission (ASIC) had already been given notice (albeit limited notice) of the interlocutory process and the affidavit then filed in support of the direction and orders that were sought.

7    There is evidence before me of compliance with the orders made on 7 June 2019. When the present application was called on for hearing on 24 June 2019, no person (including ASIC) came forward to oppose the making of the orders now sought. The Commissioner of Taxation had previously stated that he did not seek to be heard and would not be appearing.

8    The following affidavits have been read:

(a)    Justin Holzman, sworn 3 June 2019;

(b)    Mark William Bensley Faraday, affirmed 6 June 2019;

(c)    Mark William Bensley Faraday, affirmed 21 June 2019; and

(d)    Stephen John Dooley, sworn 21 June 2019.

9    I have also been provided with written submissions dated 6 June 2019, which I have placed on the Court file.

10    The legal costs and disbursements in respect of which the direction is sought fall into two categories:

(a)    a tax invoice dated 3 June 2019, issued by Henry William Lawyers for $152,445.46. This tax invoice was accompanied by a detailed narrative of work undertaken for the second and third plaintiffs in realising the assets of the Zumbo Trust and in defending and ultimately resolving the winding up proceedings that had been brought against the first plaintiff by the Australian Taxation Office. Mr Holzman, who is the second plaintiff, has deposed that he has carefully reviewed this tax invoice and is content that all the charges and disbursements recorded in the detailed narrative have been properly incurred and are payable. He has said that he does not intend to seek any assessment in respect of the costs that have been charged. He has also reviewed the fees incurred for counsel and expressed his satisfaction as to the appropriateness of those fees. Mr Holzman has deposed that, in his experience, the hourly rates charged by Henry William Lawyers and the counsel briefed by them in this proceeding are highly competitive for the legal services he has required; and

(b)    a tax invoice dated 10 December 2018, issued by Sutton Lawyers for $3,905. This was for specialist tax advice. Once again, Mr Holzman has deposed that he has reviewed this tax invoice and is satisfied that the costs incurred are appropriate for the work that was performed.

11    Evidence has also been given of the projected costs in relation to work performed by Henry William Lawyers and counsel in relation to the present application (approximately $6,600 plus GST).

12    In In the matter of Gondon Five Pty Limited and Cui Family Asset Management Pty Limited [2019] NSWSC 469, Brereton J considered the principles applicable to an application such as the present, and at [192] said:

The following guidelines may be extracted from the authorities discussed above. Although those authorities were in the context of liquidations, not receiverships, for present purposes there is no relevant distinction, and they are as applicable to receivers as they are to liquidators:

(1) liquidators (and receivers) bear the onus of justifying their disbursements;

(2)     the Court will generally be supportive of liquidators (and receivers) who have incurred disbursements and paid them out of the estate in the exercise of their commercial judgment;

(3)     liquidators (and receivers) should ensure that they obtain legal services of appropriate quality at the best possible rate; and

(4)     liquidators (and receivers) should subject the bills received from their lawyers to critical scrutiny.”

13    The second and third plaintiffs submit, and I accept, that the evidence shows that, in respect of legal fees and disbursements, they have specifically turned their minds to the matters identified by Brereton J. I am satisfied that the evidence before me sufficiently identifies the work done and the charges for that work, which enables me to scrutinise those charges. In doing so, I rely on Mr Holzman’s evidence that he is satisfied that the work was undertaken by his lawyers and that it has been properly charged at rates that are competitive for legal services of the kind the second and third plaintiffs require.

14    The trading commitments in respect of which the direction is sought are itemised in a schedule comprising Annexure JH7 of Mr Holzman’s affidavit. Mr Holzman says that this schedule reflects the expected payments due to suppliers, which constitute debts that have been incurred during the voluntary administration and liquidation periods. As I have said, these liabilities amount to approximately $839,096.65. Of this sum, approximately $635,000 is payable to the Commissioner of Taxation.

15    The second and third plaintiffs submit, and I accept, that, notwithstanding the broad powers conferred on them by Order 3 made on 14 December 2018, an order permitting the payment of the legal costs and disbursements and the trading commitments is appropriate, given the terms of Order 4 made by me on 8 March 2019.

16    As I have noted, the second and third plaintiffs wish to vary this order because, as presently framed, it can be read (perhaps over-cautiously) as restricting them from paying, without court approval, third parties engaged by them in the conduct of the receivership and/or winding up of the first plaintiff. I accept the second and third plaintiffs’ submission that this was not the intendment of Order 4. Rather, by that order it was intended that there be no payment of surplus proceeds to unsecured creditors or beneficiaries by way of distributions or dividends, until further order, because of uncertainties concerning the priority of payments and the application of s 556 of the Corporations Act 2001 (Cth) with respect to trust moneys. I am satisfied, therefore, that Order 4 should be varied so as to make its intendment clear.

17    At the hearing on 24 June 2019, the second and third plaintiffs provided draft orders. I am satisfied that it is appropriate to make those orders, substantially in the form sought.

Associate:    

Dated:    10 July 2019