Australian Executor Trustee Ltd v Provident Capital Ltd [2018] FCA 439

FEDERAL COURT OF AUSTRALIA

Australian Executor Trustee Ltd v Provident Capital Ltd [2018] FCA 439 File number: NSD 808 of 2012

Judge: RARES J

Date of judgment: 3 April 2018

Catchwords: CORPORATIONS – application for approval of receivers' remuneration under Corporations Act 2001 (Cth) s 425 – whether charges claimed reasonable and proportionate to quality and complexity of work, time spent, and value and nature of property – where receivers retained consultant for several years and on-charged services to company at rate significantly higher than retainer – whether receivers acted reasonably in failing to consider using powers under s 420(2)(o) to cause company to retain consultant directly at much lower cost to estate – whether quantum of approved remuneration should be discounted – whether allowance should be given to receivers for providing some services to consultant

Legislation: Corporations Act 2001 (Cth) s 425

Cases cited: Australian Executor Trustees Ltd v Provident Capital Ltd (2012) 203 FCR 461 Australian Executor Trustees Ltd v Provident Capital Ltd (No 3) [2012] FCA 1253 Australian Executor Trustees Ltd v Provident Capital Ltd (Receivers and Managers Appointed) (In Liq) [2016] FCA 337 Blairgowrie Trading Pty Ltd v Allco Finance Group Ltd (In Liq) (2017) 343 ALR 476 In the matter of Banksia Securities Ltd (in liq) (receivers and managers appointed) [2017] NSWSC 540 Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr (2017) 93 NSWLR 459 Templeton v Australian Securities Investments Commission (2015) 108 ACSR 545 Warner, Re GTL Tradeup Pty Limited (in liq) (2015) 104 ACSR 633

Dates of hearing: 14 December 2017 and 15 February 2018

Date of last submissions: 23 March 2018

Registry: New South Wales

Division: General Division

National Practice Area: Commercial and Corporations

Sub-area: Corporations and Corporate Insolvency

Category: Catchwords

Number of paragraphs: 78

Counsel for the Applicant: Mr J Hynes

Solicitor for the Applicant: Norton Rose Fulbright

Counsel for the Amicus Curiae (Australian Securities & Investments Commission): Mr D Stack

ORDERS NSD 808 of 2012

BETWEEN: AUSTRALIAN EXECUTOR TRUSTEES LIMITED Applicant

AND: PROVIDENT CAPITAL LIMITED Respondent

JUDGE: RARES J DATE OF ORDER: 3 APRIL 2018

THE COURT ORDERS THAT:

1. Pursuant to s 425 of the Corporations Act 2001 (Cth) (Act), the remuneration of the receivers of Provident Capital Limited (receivers appointed) (in liquidation) ACN 082 735 573 (Provident) for the period 1 April 2014 to 30 September 2016 be fixed in the sum of $3,437,933.20 (excluding GST). 2. The remuneration as fixed in accordance with Order 1 be paid as a cost of the receivership of Provident and from the assets of Provident. 3. Pursuant to s 425 of the Act, the remuneration of the receivers of Cashflow Finance Solutions Pty Limited (receivers and managers appointed) (in liquidation) ACN 113 908 017 (Cashflow) for the period 7 April 2014 to 31 August 2017 and in respect of future work be fixed in the sum of $27,058.50 (excluding GST). 4. The remuneration as fixed in accordance with Order 3 be paid as a cost of the receivership of Cashflow and from the assets of Cashflow. 5. The costs associated with the Interlocutory Process filed 20 October 2017 be costs in the receivership of Provident. THE COURT NOTES THAT: 6. In respect of Provident, the receivers' remuneration as fixed pursuant to Order 1 takes into account a deduction of $220,000.00 from the total remuneration claimed of $3,657,933. The deduction represents approximately 63% of a margin amount totalling $347,824.50 (net of payroll tax and workers' compensation) added by the receivers to the fees charged to PPB Advisory by Mr Simon Coulter during the period 1 April 2014 to 30 September 2016. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT RARES J: 1 This is the first application for approval of remuneration that the receivers, whom I appointed to Provident Capital Limited on 29 June 2012, have made to the Court: Australian Executor Trustees Ltd v Provident Capital Ltd (2012) 203 FCR 461. On 3 August 2012, I made orders that the trustee for Provident's debenture holders, Australian Executor Trustees Limited, could approve their remuneration. The 3 August 2012 orders fixed the rates of remuneration for the receivers and those rates have not increased since then. The trustee also had appointed the same persons as receivers pursuant to its securities over Provident. The trustee brought its receivership appointment to an end on 6 November 2015. 2 The identities of the individual receivers has changed over the years by orders that I have made. The receivers have been members in the firm of PPB Advisory. The receivers now are Christopher Hill and Kenneth Whittingham and Mr Hill assumed office in December 2014. 3 The receivers seek remuneration for the 30 month period from 1 April 2014 to 30 September 2016. They have not drawn any remuneration since 1 April 2014.

Background 4 Mr Hill made a number of affidavits in support of their present application. His principal affidavit of 20 October 2017 sought remuneration to be fixed in the sum of $3,657,933, excluding goods and services tax, for the period 1 April 2014 to 30 September 2016. Mr Hill explained that, in arriving at their claim for remuneration, the receivers had written off about 12.6% of the fees that their time charging system would otherwise have realised on the rates that they were allowed to apply over the course of the 30 month period. 5 When the application initially came before me for hearing on 14 December 2017, I raised a number of questions with counsel for the receivers about matters that were not clear to me at that time, despite Mr Hill's very detailed affidavit about which I had no criticism. I also wished to have assistance from the Australian Securities and Investments Commission in order to have the benefit of its experience and review of the claimed remuneration, having regard to the substantial volume of work that the receivers had undertaken in the 30 month period, and the significant size of the remuneration sought. The Commission appeared today and made submissions. 6 The receivership has been complex and the receivers have undertaken a great deal of work diligently, professionally and competently. They have effected a considerable number of sales of real property and other assets held by Provident from the time of their appointment to the present time. 7 Mr Hill said that the receivers considered on a continuing basis in conducting the receivership, the work then in progress, and had regard to the requirements of the Corporations Act 2001 (Cth) and the Australian Restructuring, Insolvency and Turnaround Association (or ARITA) Code of Professional Practice. They also considered the nature of the work, the reasonableness of the time spent in performing the tasks involved, the value added and the enhancement of any potential recovery involved. It is likely that, as Mr Hill's affidavit shows, had PPB been engaged to perform similar work over the period claimed, their rates would have been more than those the subject of the order of 3 August 2012. Accordingly, in addition to the discount of 12.6% that they applied to the remuneration sought, the receivers calculated their claim using rates lower than they might otherwise have been able to recover for similar work. 8 In general, and with one exception, I am satisfied, for the reasons below, that the receivers' claim for remuneration is reasonable, including by having regard to all of the matters referred to in s 425(8) of the Act.

The persons who performed the principal tasks 9 Mr Hill explained that over the course of the period for which the remuneration is claimed and for much of the balance of the receivership, four individuals namely Marcus Ayres, Stephen Edds, James Alexio and Simon Coulter, formed a core team. The total amount of remuneration claimed for the 30 month period in respect of the four core members of the team is over $2.5 million, or about 69% of the total, and in that period, they worked for a combined total of about 6,400 hours. 10 Mr Ayres was the receiver who had the principal carriage of the receivership up to his retirement from PPB on 15 March 2017. For example after the first year of the receivership he spent over 280 hours from 3 July 2013 to his retirement working, in particular, in relation to litigation that the receivers had undertaken, especially proceedings that I had advised the receivers that they would be justified to commence against the directors of Provident. 11 Mr Edds, was the project director for the receivership and a director at PPB. He was responsible for the general operations and winding down Provident's loan portfolio, realising its properties under management, overseeing litigation and investigation of claims that Provident might have against directors and others. He spent a total of over 1800 hours of work, generating fees of over $1 million. 12 Mr Alexio, was a manager at PPB who performed over 800 hours of work during the 30 month period for a value of about $400,000. 13 Mr Coulter, was primarily responsible for the day to day management of Provident's loan portfolio, executing its wind-down and managing security properties of which Provident had become mortgagee in possession. 14 Significantly, PPB engaged Mr Coulter as a consultant from about November 2012, and on-charged his services in their claim for remuneration at a margin of between $115 and $105 per hour above the cost that PPB incurred in retaining him. Mr Coulter worked a total of 3,514 hours in the 30 month period. 15 As Mr Hill explained in his clarificatory affidavit of 26 February 2018, filed after the last hearing on 15 February 2018, Mr Coulter's role changed from that of a level analyst 2 (for which he charged PPB $125 per hour, but PPB charged Provident $240 per hour, for about 2,080 hours, realising a margin of $115 per hour) to analyst 1 (for which he charged PPB $200 per hour and PPB charged Provident $305 per hour, for about 1,430 hours, realising a lesser margin of $105 per hour). Mr Hill calculated that PPB's margin in respect of Mr Coulter's services that formed part of the remuneration claimed for the 30 month period totalled $389,829. 16 Subsequently, he clarified in his affidavit of 23 March 2018 that he had not taken account of payroll tax and workers' compensation payments that the receivers had made in respect of their engagement of Mr Coulter totalling $31,597 over the 30 month period. These reduced the PPB's gross margin to $347,824.50. That is about 37% of the $936,581 that PPB claimed for Mr Coulter's services in the 30 month period. It is also nearly 10% of the total remuneration claimed. I shall return to considering the appropriateness of this margin below.

The nature of the receivership 17 I outlined in my reasons the dire financial position of Provident at the time that I ordered the appointment of the receivers: Provident 203 FCR 461. The receivership was particularly complex. Provident had raised funds by issuing debentures to the public. At the time that the receivership commenced, there were over 3,300 individual debenture holders. Provident also had a significant $75 million wholesale funding facility with Bendigo and Adelaide Bank Ltd under which Provident originated loans and sold them to the Bank. At the time of the receivers' appointment, the Bank's facility included 75 loans with an outstanding balance of about $75 million, 48% of which were in arrears. Provident was then mortgagee in possession in relation to seven of those loans with a principal value of about $6 million outstanding. 18 Provident also operated its own loan portfolio, using money raised from the debentures. That had a face value of over $188 million at the time of the receivers' appointment, consisting of 49 loans on which over $150 million was owed, 94% of which were in arrears, and, Provident was mortgagee in possession in respect of 17 of those loans that secured about $105 million. 19 Provident also was the responsible entity of two managed investment schemes, called the Provident Capital Monthly Income Fund and Provident Capital High Yield Fund. At the time of the receivers' appointment the Monthly Income Fund had 76 loans with an outstanding balance of about $32 million, 7% or $2 million worth of which were in arrears, and in respect of one of which Provident was mortgagee in possession. One of those loans was valued at approximately $700,000. The High Yield Fund consisted of five loans with an outstanding balance of about $640,000, 38% or about $240,000 of which was in arrears. Provident also had other operations. It conducted its lending and finance activities (including providing loans secured by mortgages) throughout Australia. 20 Mr Hill's affidavit explained, with considerable detail, 11 separate areas of work that the receivers undertook and carefully outlined in some detail the substance of the work that the receivers had undertaken. He sought to demonstrate the proportionality of the fees that he identified as referrable to that work and what persons within the receivers' workforce did to carry out those tasks. 21 Five of those areas concerned matters associated with, the general overheads of Provident, namely creditor management, employee management, administration, dividend distributions and the conduct of ongoing trading of business. The other six areas involved the receivers in specific work relating to the realisation of Provident's assets for the benefit of its secured lender, the Bank (which resulted in a profit to Provident of about $8.6 million including a special service fee of about $355,000 that the Receivers had negotiated), the realisation of many, but not all, of the mortgages, including those in default, for which Provident was the lender, the management of the two schemes and the realisation of their assets, (that resulted in approximately a profit of $2.174 million), the realisation of other assets, and the investigation and litigation of claims that Provident might bring against third parties, including against the directors. 22 Settlement of that litigation ultimately realised, notionally for Provident, a gross amount of $14 million. I gave the liquidators advice that they would be justified in obtaining litigation funding for that proceeding: Australian Executor Trustees Ltd v Provident Capital Ltd (Receivers and Managers Appointed) (In Liq) [2016] FCA 337. However, after netting off the costs of the litigation funding and of Provident to conduct that proceeding, the ultimate benefit to the estate amounted to only about $6.3 million.

The need for early dispute resolution 23 That is a remarkable discrepancy between what the directors, or more likely their directors' and officers' insurers, paid in settlement of the proceeding and what Provident, being the person who suffered the loss or damage for which the $14 million was paid, in fact, recovered. Its receipt of $6.3 million represents about 45% of what the alleged wrongdoers or their insurers paid. This discloses a troubling, but all too common, feature of both litigation funded and class action proceedings in which the alleged wrongdoer is either, itself, financially substantial or insured against the claim or both. It reflects a systematic failure of insurers and large corporate respondents (or defendants) to settle obviously reasonable and meritorious claims much earlier, before litigation commences and before a litigation funder becomes involved for its own, legitimate, commercial gain. 24 That systemic approach to dispute resolution is calculated to reduce substantially the likely net receipt of the person or class seeking to recover his, her or its alleged loss or damage. A realistic and principled approach should have been taken by those responsible for meeting the $14 million settlement to engage in constructive alternate dispute, or court, resolution, before the incurring of extensive litigation costs and the involvement of a litigation funder. Had that occurred here, it is easy now to see that either the net sum that Provident actually received ($6.3 million) could have been agreed to be paid much earlier or more could have been paid earlier to benefit Provident and its debenture holders who actually suffered the loss or damage. 25 All too often, courts are asked to approve settlements of class actions or become aware, in applications such as this, that the lion's share of settlement proceeds never reaches the persons in whose name, and purportedly for whose benefit, the proceedings were brought and the settlement or judgment paid. Professor Michael Legg, in his recent article "A Critical Assessment of Shareholder Class Action Settlements the Allco Class Action" (2018) 46 ABLR 54 at 66 accurately described a net return of a little over 50% ($20.6 million) of a settlement (of $40 million) paid by a company, as "an expensive and inefficient approach to obtaining compensation". He observed of the expenses consisting of $10.5 million as the applicants' legal costs and, after Beach J had made a common fund order, of 30% in favour of the funder's net recovery of $8.85 million (Blairgowrie Trading Pty Ltd v Allco Finance Group Ltd (In Liq) (2017) 343 ALR 476) that "the transaction costs undermine the objective of compensation". 26 Earlier, Prof Legg had suggested that the continued entry of new funders into the litigation funding market could suggest that above normal returns are being earned and that, as a consequence, "the current approach to determining a litigation funders' fee may create concern" (46 ABLR at 64). Having myself seen some, still confidential, funding reward agreements, his observation about funders' earning above normal returns is an understatement. 27 What I have discussed above is not a criticism of the receivers. In this case, because of Provident's insolvency and the risk of litigation, the receivers had no choice but to obtain litigation funding and to pursue the claim, as I advised them they were justified in doing: Provident [2016] FCA 337. However, the directors or their insurers had a choice as to when they decided to settle and could have ensured that much more of the very large sum that they paid went to benefit Provident, as opposed to third parties. Delay in engaging in realistic settlement negotiations in most cases, leads to dissipation of the ultimate judgment or settlement sum away from compensating the person who suffered the real loss to third parties who, like lawyers and litigation funders, only become necessary to the litigation all too often because of a lack of a realistic approach to early settlement by the actual parties themselves.

Principles for the Court's review of remuneration claims by its officers 28 For the purposes of these reasons, it is not necessary or appropriate to review line by line, work the receivers did. The Court's task is different, as Besanko, Middleton and Beach JJ explained in Templeton v Australian Securities Investments Commission (2015) 108 ACSR 545 at 553-554 [28]-[32]. They identified that the key question for approval of remuneration under s 425(8) was the reasonableness of the charges claimed. They said that, in assessing that question, the Court would have regard to the proportionality of the charges and, among other matters, the quality and complexity of the work done, the value and nature of the property dealt with and the time spent performing the relevant tasks. As their Honours explained (108 ACSR at 551-552 [23]): The court is to fix the remuneration by applying and taking into account a broad range of evaluative factors, but ultimately fixing reasonable remuneration. We do not see this as an exercise of a discretion per se. It has been said that the term "discretion" is "apt to create a legal category of indeterminate reference" (Dwyer v Calco Timbers Pty Ltd (2008) 234 CLR 124 at [37]). But whatever the breadth of the reference, it is inapposite to use the language of "discretion" where a court is applying a legal norm and in that application is identifying and evaluating various factors (see Dwyer at [40]). 29 In dealing with liquidators' remuneration, which is analogous to the task here, Bathurst CJ, with whom Beazley P, F Gleeson JA, Barrett AJA and Beach AJA agreed, summarised the effect of the Full Court's decision in Templeton 108 ACSR 545 in Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr (2017) 93 NSWLR 459 at 469 [49], saying that, in exercising its powers to fix remuneration, the court applies a legal norm of reasonableness and, in that application, it identifies and evaluates relevant facts. He approved (93 NSWLR at 471 [57]) the approach of Farrell J in Warner, Re GTL Tradeup Pty Limited (in liq) (2015) 104 ACSR 633 at 653 [71], namely: Whether remuneration is reasonable cannot be assessed solely by reference to time costing based on reasonable market rates or because it represents a particular percentage of the return which creditors achieve; each claim to remuneration must be evaluated on its own merits. In determining the value returned from the liquidator's work, it is relevant to consider not only the absolute return to creditors but also whether the work for which remuneration is claimed was necessary to be done: not all necessary work results in a return to creditors, but that does not mean that remuneration for it is not reasonable or justified even at the price of a more limited return to creditors. 30 Bathurst CJ also noted that, despite criticisms of time-based charging, it remained the responsibility of the court to fix reasonable remuneration on the evidence before it, taking into account the matters that the Act required to be considered, which included considering the work done by the person seeking an order fixing remuneration, whether it was reasonable to carry it out and the appropriateness of the amount charged for it: Sakr 93 NSWLR at 471 [59]. He said, and I agree, that it is not always appropriate that time-based charging be used and that it is necessary for the court to evaluate the appropriateness of the fees having regard to the factors to which I have referred. 31 As F Gleeson JA noted in In the matter of Banksia Securities Ltd (in liq) (receivers and managers appointed) [2017] NSWSC 540 at [46]: the mere fact that the work performed does not lead to augmentation of the funds available for distribution does not mean that [a receiver] is not entitled to be remunerated for it.

The basis for the heads of remuneration claimed 32 In explaining the value of the work done in respect of administration during the 30 month period for which the receivers seek remuneration of $843,000, Mr Hill identified the tasks involved, including dealing with the electronic and hard copy books and records of Provident, maintaining its information technology and loan management systems reporting to the Commission and the Australian Taxation Office (ATO), lodging returns and objections with the ATO, ultimately, recovering over $2 million from it, dealing with other aspects, such as the strategic planning of the receivership, dealing with legal advisors, general file administration and management. 33 The Commission submitted that the amount the receivers sought to recover for administration on this application was about 23% of the total sought. However, the Commission observed that while that sum was higher than it expected, having done a high-level review of the evidence in support of this head of the claim, it had not identified any anomaly and accepted that there was nothing in the claim that appeared to be unreasonable. 34 I accept that analysis as reflecting my own evaluation, in accordance with the principles outlined above. 35 The substantive recovery work that the receivers undertook during the 30 month period gives rise to a claim for remuneration under this head of $1,320,235. The receivers recovered assets worth, in total, about $123.5 million. That work resulted in the Bank being repaid in full the total sum owing under the funding facility, of $75.4 million, after the receivers had also recovered their costs of realising the securities. In addition, Provident earned a gross return of about $8.6 million from realising the securities held by or on behalf of the Bank, beyond what it had to repay the Bank. 36 Mr Hill explained the proportionality of the remuneration sought in relation to the claim for the recovery work. He said that over the whole course of the receivership, from 3 July 2012 to 3 October 2017, the receivers had accrued about $5.2 million in remuneration, including the $1.32 million now sought. He allocated a proportion of about 73% or $8.75 million of the total remuneration claimed of about $12 million in respect of the whole period of the receivership, as referable to the receivers' recovery work in respect of Provident's loan book (including the Bank facility, and schemes) which included the receivers' proportionate allocation of administrative costs and other non-recovery overheads. This allocation showed that this portion of the remuneration amounts to about 7.1% of the total recoveries of $123.5 million. 37 The receivers also claimed $47,951 for remuneration in respect of the finalisation of Provident's business under management during the 30 month period. In total, the receivers claimed remuneration of $636,574.70 for winding down the two schemes, selling their assets and recovering about $128,000 for Provident, being the value of its unit holding in one of the schemes. The costs of all the recoveries achieved for the two schemes, had been charged to the respective scheme estate. Mr Hill also explained that in about May 2015, the receivers had to negotiate a new fee structure for Provident with the unit holders in each of the two schemes. He said that was because the income that would be generated, if Provident remained as the responsible entity of the two schemes, would not be sufficient to justify the receivers continuing to act in their administration, having regard to the cost to the estate for remuneration that the receivers would generate in performing the work. Hence, the receivers negotiated successfully with the unit holders for an increase in Provident's remuneration. 38 In order to understand this aspect of the receivers' claim, I enquired at the hearing on 14 December 2017 about whether each of the schemes and the Bank had borne the costs, including the application proportion of claimed remuneration, rather than those costs being left to be met out of the balance of the estate. I also enquired about some other matters that were unclear to me on the then state of the evidence. Mr Hill responded to those queries in further affidavits. 39 He clarified, in relation the schemes, that the receivers saw three alternatives: (1) to disclaim, as onerous property, the rights that Provident had as a responsible entity of the schemes; (2) to continue to manage them as they were; or (3) to enter into a renegotiated fee structure. 40 Ultimately, the unit holders agreed to a new fee structure. Under that new agreement, the receivers realised a total of about $32.641 million from the assets of the schemes. That entitled Provident to charge management fees of about $2.046 million. In addition, the receivers recovered the value of Provident's small unit holding noted above. In essence, the total remuneration that the receivers seek (only a small amount of which is included in this application) totals over $636,000, and would amount to 1.95% of the funds recovered for the two schemes. Even after deducting the claimed remuneration, Provident will have realised, by reason of the receivers' renegotiation of the responsible entity's fees, a net benefit for the estate of over $1.5 million. 41 In my opinion, the remuneration sought by the receivers for this work is reasonable, proportionate, and should be approved. 42 The receivers realised other assets of Provident consisting of its plant and equipment, generating over $5.8 million. They seek remuneration for this work totalling $87,926.50, or about 5.8% of the total recoveries. I am satisfied that this should also be approved. 43 The receivers claim remuneration of about $800,000 in respect of investigations of the claims against the directors and the subsequent litigation against them. The receivers also had to report to the Commission and deal with the special purpose liquidators, whom I appointed to investigate claims relating to the trustee. That was because, in July 2012, soon after the Court's appointment, the trustee also had appointed the receivers as receivers of Provident under the debenture trust deed: Australian Executor Trustees Ltd v Provident Capital Ltd (No 3) [2012] FCA 1253. This claim should also be approved. 44 Last, the receivers sought a separate order approving their remuneration of about $24,000 in respect of their work concerning a company, Cashflow Finance Solutions Pty Ltd, controlled by the former managing director of Provident, Michael O'Sullivan, which owed Provident about $3.8 million, and for which, in the future they will seek approximately another $5,000 remuneration. I will approve the current claim. 45 The end result of the work undertaken by the receivers to date has been that Provident has repaid the Bank and the unit holders of the two schemes in full, and it has earned, as I have noted, a profit to itself from each of those dealings. The receivers estimate that debenture holders will receive a dividend of about 21.2 cents in the dollar as a result of their work. In total, the amount of their paid, now claimed and estimated future remuneration, approximates about 8% of the total recoveries.

Should the receivers have considered alternatives to employing themselves or contracting persons to perform some work? 46 The one aspect about which I had concern was the very significant amounts of time and the cost to the estate in the receivers' claim for remuneration in respect of the work of Mr Edds and Mr Coulter. I had observed, on 14 December 2017, that the work done by each of Mr Coulter and Mr Edds appeared to be, effectively, that of a full-time employee and I wished to understand whether there was a more reasonable and cost efficient way of having their work performed. 47 After I raised those concerns, Mr Hill made a further affidavit on 21 December 2017 in which he explained that, from his understanding prior to and after his appointment in December 2014, to his knowledge, the various receivers had given consideration to the most efficient and cost effective approach to adopt in allocating resourcing and staffing, for both their engagement and for the trading activities of Provident's business, particularly having regard to it being in a wind-down scenario, rather than being a going concern. He said that, in his experience, there were difficulties attracting appropriate persons to work in wind-down situations because of the uncertain, but limited time, which any employment might offer. He said that the receivers had given consideration to which staff members of their firm should be deployed in particular areas of the work and whether some other approach should be adopted that could save further costs and add to efficiency, such as outsourcing tasks, engaging new personnel, or having Provident continue the employment of, or engage new, personnel either on a permanent basis as an employee or as a contractor, rather than, or in addition to, relying upon particular staff of PPB. 48 He said that, based on his experience, there were some obstacles associated with having an insolvent debtor engage or retain existing personnel directly. Mr Hill said that, at the time of the receivers' appointment, Provident had 26 employees, 11 of whom were terminated immediately, and the remaining 15 continued their employment for various lengths of time. Mr Hill said that at, and after, the time of the receivers' appointment, Mr Ayres, with Mr Edds, gave consideration to resourcing and staffing together. 49 In response to my enquiry during the hearing on 14 December 2017 as to whether it would have been possible for Provident to employ persons full time to undertake the extensive work done by Mr Edds and Mr Coulter, Mr Hill said in his 21 December 2017 affidavit that there may have been a number of disadvantages. Those included the difficulty in attracting persons to fulfil such roles, and the cost, or potential cost, to the estate of employing a person on a permanent basis. Were one or more persons employed, the estate would incur add-on costs, (such as workers' compensation, payroll tax, accruing leave and redundancy entitlements) amounting to about 20% of the person's salary as well as paying bonuses. 50 Mr Hill said that at the time of their initial appointment, the receivers had considered whether, and which, staff of Provident needed to be retained so that operational aspects of the business could continue without interruption, including to ensure the continued provision of the company's knowledge to assist the receivers in their task and reduce the cost to the estate of engaging solely staff from PPB to undertake those roles. However, because the receivers expected that staff attrition would occur, they recognised the need to transfer the knowledge and experience of the existing employees over time to either their firm's staff or alternate employees. 51 The receivers decided to retain some of the senior staff, including an asset manager who remained until December 2014, the chief financial officer who remained until April 2015, and the financial controller who was to remain employed until January 2018. Mr Hill said, however, that the majority of the staff had wished to leave Provident's employ at the time of the receivers' appointment. Therefore, the receivers had to deal with that situation which required renegotiating some of the employees' remuneration packages. 52 Mr Hill explained the detailed duties and work of Mr Edds, as an experienced insolvency practitioner. He became a registered liquidator during the course of the receivership. Mr Edds had much of the day to day management of the significant tasks of the receivership. Mr Hill said that, based on his experience, Mr Edds' role during the receivership could only properly have been performed by an experienced insolvency professional. Mr Hill said that it would have been extremely difficult for the receivers to employ a person with Mr Edds' requisite experience and expertise on a permanent basis, as an employee of Provident, at a remuneration that would be any less than what the receivers were seeking to recover for Mr Edds' work. He also explained that Mr Edds' work and charges in respect of it were transparent.

Mr Coulter's engagement 53 Mr Hill explained why the receivers retained Mr Coulter as a consultant to PPB. He said that this was appropriate because that retainer gave the receivers flexibility to utilise Mr Coulter cost effectively on a needs only basis. His hours could be reduced as and when the tasks he had to perform lessened. He could act directly, with the authority of the receivers, rather than as an employee of Provident, in among other tasks, instructing solicitors on behalf of the receivers, acting on their behalf when communicating with defaulting borrowers of Provident, and providing a level of independent oversight on the day to day operations of Provident. Mr Hill said that retaining Mr Coulter as a contractor also provided transparency in respect of the fees charged to the receivership, which would not have been the case had Mr Coulter been made an employee of Provident. That was, he said, because Provident would have accounted for his remuneration and associated add-on costs as an expense of its business. Mr Hill said that by retaining Mr Coulter as a contractor there would be no such add-on costs. 54 Mr Hill said that the average cost to the receivership of Mr Coulter was about $375,000 per annum. He estimated that, based on his experience, the equivalent of an appropriately qualified asset manager for a business such as Provident in a wind-down scenario would be about $250,000 to $300,000 per annum, consisting of a base salary of about $250,000 and add-on costs of 20% amounting to $50,000. He said that on top of any salary, it was likely that performance bonuses also would be required, calculated on the percentage of any recoveries and that once the employment of the person was no longer necessary, the cost of retrenchment was likely to be about a minimum of three months' pay, amounting to about $60,000. Mr Hill said that the cost of PPB engaging Mr Coulter as a contractor during the receivership was comparable to Provident employing him on a permanent basis. Mr Hill said that, with the benefit of hindsight, he considered that the appropriate decision had been to engage Mr Coulter as a consultant to PPB as had happened. 55 Mr Hill added in his affidavit sworn on 14 February 2018, in answer to written submissions by the Commission, that PPB charged an hourly rate for Mr Coulter to the estate of Provident that included a margin of about $100 per hour. He said that this margin was largely to recover overheads incidental to providing Mr Coulter's services, such as office space, information technology, telecommunications, insurance, as well as to generate a small profit to the receivers. 56 At the hearing on 15 February 2018, counsel for the Commission multiplied the $100 margin by the 3,514 hours that Mr Coulter worked during the 30 month period for which the present claim is made, to demonstrate that PPB had made a total margin of $351,400. He submitted that had Provident retained Mr Coulter directly, the estate would have saved that substantial amount, being about 10% of the total remuneration claimed. 57 Subsequent to me delivering oral reasons on 15 February 2018, (from which these reasons have been drawn), Mr Hill swore his affidavits of 26 February 2018 and 23 March 2018. Those provided further information about the arrangements in respect of Mr Coulter. As I noted at [14]-[16] above, the receivers' claim for remuneration for the 30 month period to 30 September 2016 included a gross margin of $347,824.50 or nearly 10% of the total claimed for Mr Coulter's remuneration. Mr Hill also disclosed that, for the period between November 2012 and 31 March 2014, PPB had received a total of $242,544.20 in respect of its margin for Mr Coulter's component of his remuneration (compromising 2,109.8 hours) that the trustee had approved.

Mr Hill's evidence as to the basis of its margin for Mr Coulter 58 On 13 March 2018, I sought, through an email that my associate sent to the receivers and the Commission, further evidence of what amount should be allowed for PPB's provision of any services to Mr Coulter or Provident, such as office space, computers and the like, including whether the receivers had already charged Provident for any of those services and what those charges, if any, were. 59 Mr Hill made his affidavit of 23 March 2018 in response. He did not refer to any charges that the receivers had made for provision of any services to Provident. However, he did give evidence about PPB's business overheads as a percentage of its revenues. Mr Hill explained that PPB had written off, and not charged, 32.7 hours of Mr Coulter's time, for which it had paid him $125 per hour, and 31.6 hours for which it had paid him $200 per hour. Mr Hill said that PPB had incurred and paid direct costs of payroll tax and workers' compensation insurance totalling $31,597 in respect of its payments to Mr Coulter in the 30 month period. 60 Thus, it would have cost Provident $588,757 to engage Mr Coulter directly at the rates PPB paid him, including payroll tax and workers' compensation. Provident was already incurring its own overhead or indirect expenses that Mr Coulter's engagement may marginally have increased had it directly engaged him. Provident would have had to supply office accommodation for him, computer equipment and information technology support, as well as printing, stationery, reception and like services. 61 Mr Hill said that the weighted average of PPB's corporate overheads, being indirect costs associated with the employment of staff or contractors, as a percentage of revenue, over the five financial years ended 30 June 2017 was 29.31%. He said that those indirect costs included accounting and administration, asset depreciation, external professional expenses such as legal and audit fees, information technology infrastructure, interest and financing costs, insurance, learning and development, occupancy or leasing costs, recruitment and human resources, and printing and stationery costs. He calculated the total indirect costs of PPB's corporate overheads recoverable in respect of PPB's engagement of Mr Coulter as a consultant was $274,512 (being 29.31% of $936,581.50) leaving a net margin or profit that PPB earned of only $73,312.

Consideration 62 I am satisfied that Mr Hill has explained why it was reasonable and appropriate for the receivers to have Mr Edds perform the tasks that he did as an employee of the PPB. 63 However, my concerns in relation to Mr Coulter have not been so allayed. The rationale that Mr Hill gave for employing Mr Coulter as a consultant, as the Commission submitted, would have been equally valid were he engaged as a consultant directly by Provident. However, had Provident engaged him it would not have paid the significant margins that PPB added to Mr Coulter's fees. 64 The receivers argued that some of their margin included recovery of their overheads relating to provision to Mr Coulter of office space, information technology, telecommunications and insurance, that Provident also would have incurred, had he been employed directly by it. That is because during most of the receivership, Provident's employees worked in accommodation provided by the receivers. I accept that this consideration will entail the need to make a reduction in the apparent saving of about $345,000 represented by the margins that receivers have claimed for Mr Coulter's work. 65 I am of opinion that, in the circumstances, it was not reasonable for the receivers to engage Mr Coulter at any time during the 30 month period as a consultant to their firm and seek remuneration for his work that included the margins that I have found. There is no evidence that the receivers at any time during the course of the receivership attempted to advertise for a person with suitable qualifications to work as a full-time employee of Provident to take on the role that Mr Coulter fulfilled. Yet, as the receivership progressed, the time and cost of the work that Mr Coulter performed as a consultant to PPB should have caused the receivers to adopt a less expensive approach to his engagement. This is particularly so because they were aware that their firm was earning a margin of $115 per hour over the $125 per hour that it paid him during the 17 months to 31 March 2014. They also incurred, as Mr Hill explained, payroll tax and workers' compensation direct costs in respect of Mr Coulter. In that period PPB achieved a gross profit of about $225,000 for its engagement of Mr Coulter. 66 The concern that I raised, obviously arose with the benefit of hindsight in the context of this application. But, it must have been equally obvious to the receivers, by no later than July 2013, if not at the commencement of the receivership, that the task involved in realising the 124 mortgages, for the Bank and in Provident's loan book, including in respect of the schemes, would take considerable time and effort to achieve and would require someone to work in Mr Coulter's position almost full-time. Averaged out over the 30 month period, Mr Coulter's 3,500 hours equates to about 27 hours work in each of the 130 weeks in the 30 month period, assuming that he took no leave at all. 67 I accept that Mr Hill did not consider, consciously, that any saving would have occurred were Provident to have employed Mr Coulter or someone else who was competent to perform the task he did. However, in my opinion, the need for a person of the seniority and experience of Mr Coulter to be retained in some way for the purposes of the receivership, and for that person to work in combination with Mr Edds, required the receivers to investigate the availability of persons in the finance industry with the appropriate level of experience to undertake the task, or, if Mr Coulter were the best person known to them to do so, to engage him at the least cost to the estate. On the material presently available, that would have been as a consultant to Provident at substantially less cost. 68 In is highly likely that there are senior professionals, at or near the end of their careers, who would have been prepared to be employed or retained as a consultant, to wind-down an enterprise operation such as Provident's, as this receivership presented. But in any event, as the Commission pointed out, it is apparent that it would have been substantially cheaper and more reasonable for Provident to have engaged Mr Coulter as a consultant directly. Moreover, if Mr Coulter or someone else had been engaged as a full-time employee of Provident, that person would have been able also to perform some of the work that Mr Edds did or assist him, thereby reducing the cost to Provident of Mr Edds' work, that cost being absorbed as part of the general overheads for Mr Coulter's or the other person's full-time employment. 69 In all of the circumstances, I am not satisfied that the receivers appropriately considered the use of their power, provided in the order appointing them on 29 June 2012, to engage or discharge employees on behalf of Provident pursuant to s 420(2)(o) of the Act. 70 The receivers have done a great deal of work efficiently and well. They discounted their gross claim for remuneration by 12.6%. They have not sought to have their fees increased since their initial appointment. These are all important indications that the receivers have not set out to exploit their position in any way that could be criticised. 71 The decision that I have made concerning their engagement of Mr Coulter reflects an error of judgment or oversight in a very difficult and complex role. Nonetheless, in my opinion, in all of the circumstances, it was not reasonable for them to have engaged Mr Coulter as a consultant to their firm in the manner, at the margin and for the substantial period that they did. At the least, he should have been engaged, by no later than July 2013, as a consultant to Provident, which would have been substantially less expensive to the estate. 72 I am of opinion that the receivers should not recover indirect costs on the basis contended for by Mr Hill. It is appropriate that they should recover their direct costs of $31,597. However, Provident should not have to bear the overhead costs of PPB in respect of Mr Coulter's engagement. Provident's estate should not be charged with what was necessary to maintain PPB, such as its general overheads for matters like its interest and financing costs, external professional expenses (such as legal and audit), asset depreciation, learning and development, and any significant amount of PPB's insurance or accounting and administration salaries. 73 It is appropriate to allow a sum for him to have had an office, computer access and information technology, and stationery and printing. I consider that a sum of $50,000 per annum or a total $125,000 (or nearly $1,000 per week) over the 30 month period should be sufficient to allow for add-on or indirect costs that Provident would have incurred had it, and not PPB, engaged Mr Coulter. That equates to about 20% of the direct costs were Provident to have engaged Mr Coulter. 74 In my opinion, the relevant overhead (or indirect cost) expense is that which Provident, not PPB, would have incurred in engaging Mr Coulter. Provident had a different business and expense structure to PPB. 75 I am satisfied that it is appropriate to allow the receivers a total of a little over $715,000 for Mr Coulter's engagement over the 30 month period based on the following. Consultant fees paid $ 557,160 Direct costs (payroll tax, workers' compensation) $ 31,597 Indirect costs allowance $ 125,000 $ 713,757

76 Doing the best I can, for the reasons I have given, it is appropriate to disallow a round figure of $220,000 being nearly 63% of the margin that the receivers seek (and 23.5% of their total claim for his engagement) as remuneration for the 3,514 hours in respect of Mr Coulter's engagement during the 30 months of the present claim.

Conclusion 77 It is important in external administrations of estates, involving the degree of work and effort that has been required to realise the estate of Provident for the benefit of the debenture holders and the secured creditors, that appointees in the position of receivers actively consider, so that they can later demonstrate to the Court, the adoption of a reasonable approach calculated to minimise the costs of the employment or engagement of persons including themselves and their staff, to perform work for the benefit of the estate. That often will involve the need, as I consider was incumbent on the receivers here, to consider whether some role or roles should be performed by the receivers' firm or a consultant or employee engaged by the firm or by the estate directly. Receivers (or liquidators) ordinarily, should select the means for performing the work required to discharge their duties that will cause the least financial burden on the estate. 78 The purpose of the Court having to approve remuneration, by having regard to the reasonableness and proportionality of the fees claimed in a receivership under s 425(8), is to safeguard the interests of the estate. Overall, as I have found, the receivers' conduct of the receivership appears to have been of a high professional standard and of substantial benefit to the estate. For the reasons I have given, I am satisfied that the balance of their present claim for remuneration should be approved. I certify that the preceding seventy-eight (78) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.

Associate: Dated: 3 April 2018