Former administrators' remuneration opposed by current liquidators

Australian Securities and Investments Commission v Marco (No 15) [2024] FCA 347
Should a court approve the fees of a company’s former administrators where the current liquidators oppose?

Overview

In this case, the Court considered a request by the former administrators of a company which operated an unregistered management investment scheme for a determination of their remuneration and payment of their costs and expenses. The former administrators had conducted extensive work over a 10-week period, among other things, investigating the company’s assets and assessing and forming an opinion on the merits of a DOCA proposal. The Court concluded that the remuneration claimed was excessive in light of the absence of any property available to satisfy the company’s creditors and the significant risk that the conditions of the DOCA proposal would not be satisfied.

Background

Cameron Shaw, Richard Albarran and Marcus Watters of Hall Chadwick (the “Former Administrators”), the former voluntary administrators (and for a short time liquidators) of AMS Holdings (WA) Pty Ltd, sought payment of $982,885.53 in remuneration and $313,208.92 in disbursements and costs for work performed over a 10-week period in late 2020. Rob Kirman and Rob Brauer of McGrathNicol (the “Liquidators”), the current liquidators of AMS, opposed the determination and orders sought.

The Former Administrators were appointed in September 2020. At that time, ASIC had brought winding up proceedings and was investigating AMS and associated Perth businessman Chris Marco — who is accused of defrauding investors of $36.5 million — for operating an unregistered management investment scheme.

After the Former Administrators’ appointment, Mr Marco made a number of proposals that AMS enter into a DOCA backed by a deed fund comprising assets of Mr Marco, AMS as trustee, and members of Mr Marco’s family. All these assets were derived from funds that investors in the alleged scheme had provided to Mr Marco. Completion of the DOCA was conditional on ASIC failing to obtain the relief it sought in the winding up proceedings and the Court dissolving or varying certain asset preservation orders. At the second meeting of creditors in November 2020, the creditors did not resolve that AMS execute a DOCA and instead resolved that AMS be wound up. In December 2020, ASIC obtained orders winding up the scheme.

The Court appointed the Current Liquidators (who had already been appointed interim receivers of the property of Mr Marco and AMS in May 2020) as receivers, and the Former Administrators (who had by then become liquidators by operation of s 446A of the Corporations Act 2001) were removed as liquidators at the same time.

The Former Administrators sought approval of their remuneration, disbursements and costs, which related to their extensive and detailed work in investigating assets of the proposed deed fund, assessing and forming an opinion on the merits of the DOCA proposals, convening and holding creditors meetings and reporting to and communicating with creditors. The Liquidators took the position that much of the work performed by the Former Administrators was neither necessary nor reasonable given the absence of any property available to satisfy AMS’s creditors and the risk that the conditions of the DOCA proposal would not be satisfied.

The Court’s Decision

The Court agreed with the Liquidators, inferring from “the evident lack of proportionality between the cost of the work relative to the value of the services provided” that the remuneration claimed was excessive and unreasonable.

The Court acknowledged that the Former Administrators were obliged to investigate the business, property, affairs and financial circumstances of AMS, and that, given the manner in which Mr Marco conducted his affairs, it was likely necessary and reasonable for the Former Administrators to perform a certain amount of work to identify the business, property, affairs and financial circumstances of AMS to distinguish from those of Mr Marco and the alleged scheme.

However, at the time of or shortly after their appointment, the Former Administrators had available to them certain documents, including a report prepared by the Liquidators in their capacity as interim receivers, that showed that AMS undertook no business activities in its own right. The report dealt with the assets and liabilities of Mr Marco and AMS as trustee in a consolidated way because the assets of AMS were acquired with investors’ funds. No explanation was given as to why the Former Administrators could not rely on this information and instead considered it necessary to undertake a separate and independent investigation, particularly given the doubt that the conditions of the DOCA proposals would be satisfied.

The Former Administrators had claimed remuneration for work done by them and approximately 40 other members of their staff over a period of about 10 weeks, including 739.70 hours preparing reports to creditors, 496.30 hours adjudicating proofs of debt, 354.10 hours on creditor meetings, 120.30 hours on DOCA related tasks, 98.90 hours investigating assets and 141.40 hours investigating investments and private placement programs. The Former Administrators had applied a 15% discount, such that the amount claimed was $893,532.30 (excl GST), rather than $1,051,214.50. This was done “in recognition of the manner in which the work was performed with layers of supervision of increasingly junior staff" and to account for “constant re-working” required as information and ideas changed in the course of the administration.

However, even with this discount, the Court found that the Former Administrators had not demonstrated that the time and amount claimed for their work represented the value of services rendered to AMS’s creditors. The total time cost of the work was $950,508.35 (incl GST), and it was all performed in a period of about 10 weeks “in respect of a company that had no assets available to discharge its liabilities to creditors and in circumstances where there was a very significant risk that, if the creditors voted in favour of it, the DOCA would not be performed”. The Court could not accept that a businessperson, spending his or her own money, would have embarked on work of the nature and extent the administrators performed.

Conclusion

The Court ultimately allowed $100,192.26 (incl GST) in remuneration and $84,014.37 (incl GST) for legal costs and disbursements.

Judge: Feutrill J

Counsel for the Liquidators: Paul Walker of Francis Burt Chambers

Solicitor for the Liquidators: Ashurst Australia

Counsel for the Applicant Administrators: Paul Edgar SC of Quayside Chambers

Solicitor for the Applicant Administrators: Thynne + Macartney