Tang v Arc Attack Engineering Pty Ltd

The plaintiffs in these proceedings are former administrators of ARC Attack Engineering Pty Ltd (“the Company”). I will refer to the plaintiffs as "the Administrators". They were appointed as administrators on 29 August 2017. Subsequently, on 29 September 2017, the Company was wound up and Steven Nicols was appointed as liquidator. I will refer to Mr Nicols as "the Liquidator".

In these proceedings, the Administrators sought to have the Court fix their remuneration for the work done by them during the period of the administration. Ordinarily such an application would be dealt with in the winding up, but in the unusual circumstance that the Administrators were not appointed as liquidators, the application has been made by way of separate proceedings naming the Company itself as defendant.

No objection was taken to this course by counsel who appeared on the instructions of the Liquidator in the proceedings and I made an order granting leave to the Administrators to proceed against the Company in liquidation. Whether the application could have been made by way of interlocutory process in the proceedings which led to the winding up order (which took place in the Federal Court) does not need to be determined for present purposes.

The application is made under former s 449E of the Corporations Act 2001 (Cth). That section has been repealed with effect from 1 September 2017, but the transitional provision (Corporations Act, s 1581(1)) provides that it continues to apply in relation to an administration which began before the repealing legislation, as this one did.

The proceedings were conducted on a contested basis between the Administrators on the one hand and the Company through the Liquidator on the other. Affidavits were exchanged and a detailed work-in-progress ledger was prepared setting out objections made by the Liquidator to particular items of cost claimed and the Administrators’ responses to those objections. When the matter came on for hearing before me, however, the parties had reached agreement. This involved a reduction in the amount claimed from approximately $166,000 to $119,000. Counsel for the Liquidator indicated that the reduced figure is a proper one.

Section 449E requires, in the circumstances of this case, the Court's approval. In theory the Court is not constrained by the agreement between the parties and could investigate the level of costs for itself. In some cases, particularly where the only contradictor is a creditor who may not be well resourced, it may be appropriate for the Court to consider for itself, at least in a broad brush way, the proportionality of the amount claimed (see, for example, Re ACN 159 605 188 Pty Ltd (in liq) [2018] NSWSC 356). But in the present case the proceedings have, as a matter of substance, been conducted as adversarial proceedings. The Liquidator was ideally placed on behalf of the Company to make a judgment about the appropriateness of the claim for costs. By pursuing objections and securing an agreed reduction in the claim, he has done so. In these circumstances, I think it is sufficient for the Court to approve the amount which the Liquidator has agreed.

The Liquidator is also content for the Administrator's costs of these proceedings to be paid out of the Company's funds provided that those costs are limited to costs on a party/party basis. But there is a technical difficulty. The order of priority for debts and claims for payment out of the assets of a company in liquidation is set out in the Corporations Act, s 556(1). That includes, pursuant to paragraph (1)(a), as a first priority, “expenses…properly incurred by a relevant authority [which would include the Liquidator] in preserving, realising or getting in property of the company, or in carrying on the company's business". The fourth category of debts and claims is in subpara (c) which is “debts for which paragraph 443D(a) or (aa) entitles an administrator of the company to be indemnified”.

Section 443D relevantly gives an administrator a right of indemnity "for any other debts or liabilities incurred...in good faith and without negligence by the administrator in the performance of or exercise, or purported performance or exercise, of any of his or her functions or powers as administrator” (subpara (aa)).

On the face of it, s 556 and s 443D (to the extent that the latter is picked up by s 556) presuppose the existence of liabilities which exist independently of those provisions, and the Court has no power to displace or vary the order of priority or to insert a new category of expense under its power to award costs.

However, s 90-15 of the Insolvency Practice Schedule in the Act relevantly provides:

In my view, it is implicit in this section that the Court may order that an external administrator or another person is to be reimbursed by the company for the costs of court proceedings where, if the company were not in liquidation, a costs order could be made against it. If I am wrong in that view, then s 90-15(5)(b) expressly allows the Court to order that expenses (which would include legal expenses incurred by the Administrators) if otherwise subject to the indemnity in s 443D shall not be reimbursed by the Company or may only be reimbursed to a particular level.

Accordingly, I think I can give effect to the agreement between the parties (which is obviously an appropriate compromise given the outcome of the proceedings) by ordering that the Administrators be reimbursed their costs of the proceedings by the Company, but limited to their costs as assessed on the ordinary basis. Whether the effect of this order is to impose an obligation on the Liquidator which falls within s 556(1)(a) or to limit a right of indemnity which would otherwise exist under s 443D and would fall within s 556(1)(c) does not need to be determined. I have been informed that having regard to the state of the administration, it will not make any practical difference.

For these reasons, I will make orders fixing the remuneration of the Administrators as in the agreed amount of $119,000 plus GST and providing for the Administrators to be reimbursed their costs in the manner just mentioned.

The orders of the Court are: