Australian Securities and Investments Commission v Linchpin Capital Group Ltd (No 3) [2020] FCA 44

FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Linchpin Capital Group Ltd (No 3) [2020] FCA 44 File number: QUD 439 of 2018

Judge: DERRINGTON J

Date of judgment: 30 January 2020

Catchwords: CORPORATIONS – receivers – remuneration – degree of particularity required of supporting affidavit

Legislation: Corporations Act 2001 (Cth) Federal Court Rules 2011 (Cth)

Cases cited: Mohamed v Hurstville Tower Medical Clinic Pty Ltd (in liq) [2006] NSWSC 4 Park v Whyte (No 2) [2018] 2 Qd R 413 Re Solfire Pty Ltd (No 2) [1999] 2 Qd R 182 Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96

Date of hearing: 30 January 2020

Registry: Queensland

Division: General Division

National Practice Area: Commercial and Corporations

Sub-area: Regulator and Consumer Protection

Category: Catchwords

Number of paragraphs: 20

Counsel for the Interested Persons: Mr L Copley

Solicitor for the Interested Persons: MinterEllison

Table of Corrections

14 April 2020 In paragraph 1 "Linchpin Capital Group Pty Ltd" has been replaced with "Linchpin Capital Group Ltd".

14 April 2020 In paragraph 1 "Endeavour Securities (Australia) Pty Ltd" has been replaced with "Endeavour Securities (Australia) Ltd".

14 April 2020 In paragraph 20 "who appears on behalf of the plaintiffs" has been replaced with "who appears on behalf of the applicants".

ORDERS QUD 439 of 2018

BETWEEN: AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Plaintiff

AND: LINCHPIN CAPITAL GROUP LTD (ACN 163 992 961) First Defendant

ENDEAVOUR SECURITIES (AUSTRALIA) LTD (ACN 079 988 819) Second Defendant

AND: JASON MARK TRACY Interested Person

DAVID ORR Interested Person

JUDGE: DERRINGTON J DATE OF ORDER: 30 January 2020

THE COURT ORDERS THAT:

1. The remuneration and internal expenses of Mr David Orr and Mr Jason Tracy in their capacity as joint and several Receivers and Managers (Receivers and Managers) is approved and fixed in the following amounts: (a) $59,259.00 plus GST, comprised of $59,009.00 plus GST for remuneration and $250.00 for internal disbursements (expenses) plus GST, for the period 25 September 2018 to 15 March 2019 to be paid from the property of the first defendant in its own right; and (b) $164,844.50 plus GST for remuneration for the period 25 September 2018 to 15 March 2019, to be paid from the property of the first defendant as trustee of the Investport Income Opportunity Fund (unregistered); and (c) $116,645.50 plus GST, for remuneration for the period 25 September 2018 to 15 March 2019, to be paid from the Endeavour Scheme property (as defined in the orders of the Honourable Justice Derrington on 7 August 2018). 2. The Receivers and Managers' costs of and incidental to this application be paid in the following proportions: (a) 17% from the property of the first defendant in its own right; (b) 49% from the property of the first defendant as trustee of the Investport Income Opportunity Fund (unregistered); and (c) 34% from the Endeavour Scheme Property in the same proportion as the remuneration and expenses referred to in paragraph 1. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction 1 On 7 August 2018, the applicants Mr David Orr and Mr Jason Mark Tracy, were appointed receivers and managers of the property of Linchpin Capital Group Ltd (Linchpin) and of two managed investment schemes. Their appointment was made pursuant to an application made by the Australian Securities and Investments Commission (ASIC). The applicants were retired as receivers on 15 March 2019, and appointed liquidators of Linchpin. They were also appointed as liquidators of Endeavour Securities (Australia) Ltd. In their capacity as liquidators they were also appointed to take responsibility for ensuring that certain unregistered and registered managed investment schemes be wound up. 2 Initially, the applicants were appointed as receivers for the purposes of investigating the affairs of Linchpin and the managed investment schemes, which had been promoted and operated by Linchpin and Endeavour Securities, and to report on the same to the court. That report was provided on 24 September 2018. 3 On 11 March 2019, this court determined the receivers' remuneration for the period from 8 August 2018 until 24 September 2018, which was in respect of work undertaken up to that point in time. 4 The present application seeks the making of orders for remuneration of the receivers in respect of the period from 25 September 2018 to the conclusion of the receivership on 15 March 2019. This period covers the work undertaken by the receivers in the further conduct of the receivership which included the preparation for, and giving evidence at, a trial between ASIC on the one hand, and Linchpin Capital Group and Endeavour Securities on the other.

Notice of the application 5 The receivers sought orders in relation to the hearing of this application for remuneration and, on 13 December 2019, such orders were made. They included orders as to the notification of the application to interested parties. The receivers, through their solicitors, have undertaken the necessary steps to notify interested parties and those steps included the sending of a circular by email to creditors, members or unit holders as well as the publication of the Court's orders concerning this hearing in a prominent place on the website maintained for the purposes of the receivership. 6 The receivers have deposed to the absence of any notification by any party seeking to resist the orders for remuneration, save that ASIC has indicated it does not object to nor does it query the remuneration for which approval is sought.

Principles relevant to the exercise of the Court's power 7 The power of the Court under r 14.24 of the Federal Court Rules 2011 (Cth) to fix the receivers' remuneration is governed by the general principle that the Court should only allow remuneration which is fair and reasonable. The process of that assessment is analogous to the Court's adjudication of remuneration plans by liquidators or provisional liquidators under the erstwhile s 473 of the Corporations Act 2001 (Cth). It is generally recognised that the objective is to award a sum which will reasonably compensate for the time and trouble expended in the execution of the receivers' duties and for the responsibility which they have assumed: Mohamed v Hurstville Tower Medical Clinic Pty Ltd (in liq) [2006] NSWSC 4 [8]. Although reference is made to the concept of "compensation", the assessment of reasonable remuneration must be understood in the context in which receivers and managers or liquidators or administrators for that purpose operate. This was recognised by Jackson J in Park v Whyte (No 2) [2018] 2 Qd R 413, where his Honour observed: 163. …[I]n determining remuneration it is not the function of the court to hypercritically assess the day by day activities or tasks carried out in the course of a complex administration over a lengthy period of time with the benefit of hindsight. In this context, it is sometimes remarked that the remuneration available to insolvency practitioners should be sufficient to encourage them to carry out the important public function of the administration of insolvent entities for the benefit of creditors, investors (whether company members or fund members) and the public administration of the insolvency laws in general. 164. As well, the preparation of detailed affidavit material setting out extensive support for the correlation of individual or groups of line items and charges to particular tasks and functions of sufficient utility to be classed as reasonable remuneration is itself a time consuming and expensive exercise. In the usual course, those costs must be added to the costs of the application for remuneration to be paid to the relevant administrators or liquidators. 8 The reference by his Honour to the preparation of a detailed affidavit can be traced back to the dicta of Shepherdson J in Re Solfire Pty Ltd (No 2) [1999] 2 Qd R 182 at p 191, where his Honour said: In my view, when a provisional liquidator seeks to have his remuneration determined by the court he should provide a document not dissimilar in form to the Bill of Costs in taxable form provided by a solicitor to his client (see O.91 r.47). He should identify the person or persons and the grade or grades of the person or persons engaged in the particular task concerning the provisional liquidation, he should identify that task and dates on which time was spent on it, the amount of time spent on it and he should identify the relevant rate, according to the grade of the person or persons performing the work. I also consider that he should require the person performing the work to keep reasonably detailed diary notes and time sheets which documents should be open to inspection by persons entitled to see them. 9 It has subsequently been observed in Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96 by Kennedy and Ipp JJ, that there is no absolute rule that an affidavit of the type referred to by Shepherdson J must be filed by a liquidator or administrator when seeking their remuneration. What is necessary will depend upon the circumstances of each case, and the overriding principle remains that sufficient information must be provided to the Court to enable it to perform its function of determining an appropriate level of remuneration. At pp 102-103 their Honours said: As a starting point, in our view, the onus is on the provisional liquidator to establish that the remuneration claimed is fair and reasonable. It is the function of the court to determine the remuneration by considering the material proffered and bringing an independent mind to bear on the relevant issues. The initial task is to consider whether, prima facie, the provisional liquidator has made out a case for the determination of the amounts claimed. The fact that there may be no person who objects to the claim, or any part of the supporting testimony, or that objectors advance unsustainable arguments, or do not properly formulate their objections, cannot detract from the court's duty in this respect. The judicial officer conducting an inquiry under s.473(2) is required to make an independent determination of the remuneration claimed, even if there is an absence of objectors, or appropriately detailed objections, or objections advanced on arguable grounds. Of course, once the court is satisfied that the provisional liquidator has made out a prima facie case that the remuneration claimed should be allowed, the absence or inappropriateness of points taken by objectors becomes relevant. 10 The making of an independent assessment of appropriate remuneration requires a consideration of the difficulty encountered by the receivers in performing their work and, in particular, with respect to the collection and realisation of assets and the volume and complexity of the work undertaken. Such matters necessarily impact upon the amount of time which the receivers are required to expend and the level of expertise applied to that work. In nearly all cases, there must be some proportionality between the size, nature and value of the work and the remuneration claimed.

Evidence in the present case 11 Here the receivers have filed a detailed remuneration report which is an annexure to the affidavit of Mr Michael Orr. The affidavit identifies that the remuneration sought by the receivers is calculated on a time basis and identifies the rationale for proceeding in that way. It is fair to observe that the rationale provided is logical in that, if the recording is undertaken accurately, only work actually performed will be remunerated. 12 The remuneration report identifies the hourly rates which the receivers charged and such rates were identified to ASIC prior to the receivers' appointment. Such rates are well within the bounds of the commercial rates of remuneration for the type of work conducted by persons holding the expertise of the receivers and their employees. 13 Mr Orr and Mr Tracy make a declaration that they are satisfied that the remuneration claimed is in respect of necessary work properly performed in the conduct of the receivership. On the material before the Court there is no reason to doubt their assertion in that respect. 14 The report annexes numerous "timesheets", being printouts of an electronic version of the data maintained on the receivers' computers. That information discloses the date on which work was performed, the identity of the person undertaking the work, the rate at which that person's work has been charged, the amount of time spent and sufficient detail of the work done. This material evidences both the necessity for the work, the actual work and the remuneration sought in respect of it. 15 It is to be recalled that the receivers were appointed to Linchpin in its own capacity, and to that company in its capacity as the trustee of an unregistered managed investment scheme, as well as to the property of the Endeavour scheme. That being so, the work undertaken by receivers and the employees has been allocated to the relevant receivership in respect of which work was done. Where the work might properly be said to have been performed in respect of two different receiverships, it appears that the one most closely connected with the work has been charged with the relevant amount.

Linchpin in its own capacity 16 In relation to the receivership of the property of Linchpin in its own capacity, remuneration in a sum of $59,259 is sought. Mr Orr has explained the nature of the work undertaken and identified in detail the evidence which supports its completion, as well as the level of remuneration claimed. It is observed that the present cash holdings of Linchpin in its own right are $18,888. Therefore, presently the funds held are insufficient to meet the remuneration claim. It may be that further realisations will be made in the future, but that is by no means certain. The receivers have satisfied the Court that the remuneration sought in respect of Linchpin Capital Group is fair and reasonable.

Linchpin as trustee of the unregistered scheme 17 The receivers also seek a sum of $164,844.50 in respect of work done in the receivership of the unregistered scheme operated by Linchpin. Again, the affidavit of Mr Orr satisfactorily provides detailed evidence of the identity of the persons who worked on the receivership, their position within his firm, their individual hourly rates and the number of hours worked. Also included is a detailed description of the work carried out by those persons. The evidence helpfully accumulates the work done into categories. Necessarily, the receivership of the scheme had elements of complexity to it, including the need to address the AFSL issues which precipitated ASIC's action, as well as the protection of the assets of the fund, including its loan portfolio. Mr Orr has provided a detailed description of the tasks carried out. He has discharged the burden of establishing that the costs incurred and the remuneration sought is fair and reasonable.

Registered scheme 18 The receivers seek the sum of $116,645.50 in respect of the work done with respect to the receivership of the registered scheme. Again, Mr Orr has provided a breakdown of the information necessary to satisfy the Court of the fairness and reasonableness of the costs incurred. He has again identified the persons who did the work, the work done, their identity, rate of charge and number of hours worked. In this respect also, the Court can be satisfied of the appropriateness of the remuneration claimed.

Apportionment of costs 19 The receivers, recognising that an application had to be made in respect of each receivership, have sought an order that the costs of this application be borne proportionally between the three receiverships. The suggested apportionment correlates to the proportion of remuneration sought in respect of each receivership and that is appropriate. In that way, the receivers are entitled to their costs of this application out of the assets of the three receiverships with the Linchpin receivership being responsible for 17% of the costs, the unregistered scheme receivership being responsible for 49% of the costs and the registered scheme being responsible for 34% of the costs.

Conclusion 20 Mr Copley, who appears on behalf of the applicants, has provided a draft order. The orders sought reflect those which are appropriate consequent upon the orders, and I am prepared to make those orders in the form of the draft. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Derrington.

Associate: Dated: 30 January 2020