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[2022] QSC 74
In this significant application, a voluntary administrator sought orders varying a remuneration determination made by a creditors’ resolution. This application was opposed by the company and creditors, who argued the administrator was not properly appointed and should have terminated the administration. They further supported the creditors’ resolution that remuneration should be set as an “ad valorem” amount of the admitted proofs of debt in a fund for some unsecured creditors. Justice Jackson made the orders sought by the administrator.
Jackson J
9 May 2022
On 2 March 2021 the applicant was appointed voluntary administrator by resolution by Mr Blennerhassett as sole director of the Allied Rural Pty Ltd (the “Company”). [28]. At the second creditors’ meeting, held on 10 May 2021, the meeting resolved that the Company execute a deed of company arrangement (“DOCA”), and that the applicant be appointed deed administrator. [70]. On 29 April 2021 the applicant had completed the administrator’s report and recommended a resolution that the applicant be paid remuneration of $155,148 to 16 April 2021 and at stated rates until 9 May 2021. [69]. However, the meeting voted down this resolution, and instead passed resolutions that the remuneration be fixed to an “ad valorem” amount, being 20% of the value of the admitted proofs of creditors entitled to share in the fund provided for under the DOCA. [71]. As the fund was capped at $220,000, this meant a maximum remuneration of $44,000. [73].
Consequently, the applicant brought an application under s 60-11 Insolvency Practice Schedule (Corporations) (“IPSC”), contained in Sch 2 Corporations Act 2001 (Cth) (“Corporations Act”), seeking orders setting aside the creditors’ remuneration determination and substituting a remuneration determination in the amount of $228,891 plus GST. [1]. The respondents, comprising the Company and two creditors with close relationships to the Company, opposed the application on the ground that the work of the administration was not necessary for three reasons: [2]–[3]
- the applicant was not validly appointed as administrator;
- the applicant should have terminated the administration almost immediately, and thus avoided the costs of the administration; and
- the remuneration should be limited to an “ad valorem” amount, being 20% of the value of the admitted proofs of creditors entitled to share in the fund provided for under the DOCA.
Invalid appointment and termination of the administration
Turning to the first ground relied upon by the respondents, Jackson J identified two ways in which the applicant’s appointment was said to be invalid: that Mr Blennerhassett had not genuinely formed the opinion in good faith that the Company was insolvent or likely to become insolvent at the time of the resolution; and that he made the resolution for an improper purpose. [88]. In making this argument, the respondents relied on Re Condor Blanco Mines Ltd [2016] NSWSC 1196, where the Court suggested that an administrator may have a duty to inquire as to the validity of their appointment where it was “plain as a pikestaff, without inquiry” that the directors were resorting to administration for an improper purpose. [89]–[90].
Justice Jackson considered that there were some significant difficulties with the reasoning in Condor, grounded in part in the vexed question of whether the directors’ resolution was a “void” decision or a “voidable” one, which is in tension with the provisions of the Corporations Act designed to ameliorate procedural irregularities. [91]–[93]. In any event, his Honour concluded that the question in this case was different to the question in Condor. In Condor the question at issue was as to the validity of the appointment of the administrator. That question of possible invalidity was not raised in the same way in this case. [97].
In this case, Jackson J found it was significant that the question of the validity of the appointment of the administrator was raised after steps had been taken in the administration and it passed into a deed of company arrangement (DOCA). [97]–[100]. Given the respondents refused to go through with any challenge to the invalidity prior to the bulk of the work of the administration being done, and benefited from such work, Jackson J considered that the doctrine against permitting a person to “approbate and reprobate” ought to apply. [100]–[104]. That is, as they obtained a benefit by saying the appointment was valid, they ought to be estopped from denying its validity before the Court. [102]–[104].
Justice Jackson refused the ground of opposition relating to the termination of the administration for substantially the same reasons. [105]–[106].
“Ad valorem” remuneration
Justice Jackson commenced consideration of this ground by noting that he had not found another case of an administrator appointed under Part 5.3A Corporations Act being remunerated “by a percentage of the amount of the admitted creditors’ debts for dividend purposes under a deed of company arrangement operating after the termination of the voluntary administration.” [109]. Rather, “ad valorem” remuneration had only ever been applied as a percentage of the assets under administration or realised or distributed. [109]. His Honour considered this state of affairs to be “logical” given the lack of connection between the amount of the debts and the amount of the work of an administration. [110].
Looking specifically to the justification of the use of this “ad valorem” methodology in this case, Jackson J noted that no explanation for why this would give rise to reasonable remuneration in this case had been offered. [111]. Further, the work of receiving and admitting proofs for the purposes of the DOCA is properly considered work under the DOCA, not work of the administration under Pt 5.3A Corporations Act, and the debts subject to the fund did not include the Company’s most significant debts. [111]. His Honour noted that if all debts were considered for the “ad valorem” calculation, the remuneration would be $315,448. [111]. Having regard to these factors, Jackson J considered it was appropriate in the circumstances to review the remuneration determination. [115].
Having regard to the complexities of the administration, the fact the Company continued to trade profitably during the administration, the fact stakeholders were notified of the billing method proposed by the applicant, and that the applicant is an experienced insolvency practitioner who had reviewed the work carried out, Jackson J accepted the applicant’s claim. [116]–[123].
Jackson J varied the applicant’s remuneration determination to $228,891.00 plus GST. [128].
M Paterson