In the matter of Sirrah Pty Ltd

1. [1]

   HER HONOUR: This is an application by Alan Hayes, the provisional liquidator, now liquidator, of Sirrah Pty Ltd (in liquidation) for:

2. [2]

   In addition, before the Court is an application by the second defendant, William Harris, and fourth defendant, Harris Health Care Pty Ltd, to stay any order which I may make in respect of Mr Hayes' application. Mr Hayes relied on his three affidavits. William Harris and Harris Health Care read affidavits by their solicitor, Farshad Amirbeaggi.

FACTS

1. [3]

   Sirrah is a company which was formed by Robert and Aileen Harris to facilitate the business of an aged care facility in Westmead. Sirrah has 741 ordinary shares of which 350 are held by the plaintiffs, Monica Brown and Gregory Harris as executors for the estate of the late Aileen Harris. A further 389 shares are held by Harris Health Care. One share is held by William Harris, the son of Robert and Aileen Harris. One share is held by Michelle Harris. William and Michelle Harris are directors of Sirrah.

2. [4]

   In 2017, Sirrah sold its business and assets. Since then, Sirrah’s primary function has been completing the sale, settling its tax position and dealing with aged care bonds.

These proceedings

1. [5]

   In 2018, Black J gave leave to the plaintiffs to bring a derivative suit on behalf of Sirrah against William Harris, Michelle Harris and Harris Health Care. As part of the grant of leave, the plaintiffs gave an indemnity to pay any costs orders made in the proceedings brought on behalf of the company: In the matter of Sirrah Pty Ltd [2018] NSWSC 1802. Thereafter, it appears that a fairly difficult and strongly contested application for relief on behalf of the company ensued.

2. [6]

   Relevantly for present purposes, on 14 October 2019, Black J appointed Mr Hayes as provisional liquidator to Sirrah to report upon the affairs of the company. On 9 December 2019, Black J made orders requiring Mr Hayes to prepare a report. On 17 March 2020, Mr Hayes submitted his report to the Court, which comprised some 92 pages. A further report was provided by Mr Hayes on 16 March 2021 comprising a further 41 pages. It was submitted today by Mr Hayes’ counsel that the results of Mr Hayes' work informed the plaintiffs’ substantive application; his investigations revealed a number of matters in respect of which the plaintiffs sought relief on behalf of the company.

3. [7]

   The plaintiffs’ substantive claims were heard in March 2021 and, on 23 April 2021, Black J gave judgment in In the matter of Sirrah Pty Ltd (in prov liq) [2021] NSWSC 413 inter alia giving judgment for Sirrah against Harris Health Care in the sum of some $16.7 million plus interest and judgment in favour of Sirrah against William Harris in the sum of some $15.6 million plus interest. These judgment amounts overlap; some of the liabilities between William Harris and Harris Health Care are joint and several. In addition, Black J made orders winding up Sirrah on just and equitable grounds and appointed Mr Hayes as liquidator of the company.

4. [8]

   William Harris and Harris Health Care have appealed, in part, against his Honour's judgment. For present purposes his Honour's judgment must be taken to be correct.

Second proceedings

1. [9]

   In July 2021, Sirrah commenced proceedings against the receiver and manager of William Harris' assets, Yates Beaggi Lawyers, William Harris, Harris Health Care and Masud Behnia. Sirrah sought orders restraining the receiver from dealing with William Harris' assets. Sirrah sought to replace the receiver for William Harris and Harris Health Care and also sought the production of documents.

2. [10]

   In October 2021 Williams J dismissed the second proceedings: In the matter of Sirrah Pty Ltd (in liq) [2021] NSWSC 1274. On 18 October 2021, her Honour ordered that Sirrah pay the costs of the receiver together with the costs of the Yates Beaggi Lawyers and Masud Behnia: In the matter of Sirrah Pty Limited (in liq) (No 2) [2021] NSWSC 1326.

3. [11]

   Mr Hayes said that the receiver did not actively participate in the second proceedings but relied upon the submissions made on behalf of the Yates Beaggi Lawyers. Yates Beaggi Lawyers have served an application for assessment of its costs in the sum of $156,537.40, in respect of which a notice of objection has been filed by Sirrah. The final entitlement of the Yates Beaggi Lawyers to its costs in respect of the proceedings heard by Williams J remains to be determined. Masud Behnia played a limited part in the proceedings and has provided their costs in the sum of $27,693.

The appeal

1. [12]

   Returning to the appeal against the judgment of Black J, the appeal was heard on 29 November 2021; judgment was reserved. I was taken to various portions of the transcript of the appeal by which it was said by the plaintiffs in these proceedings that the prospects of succeeding on appeal were remote. I am in no position to assess the merits of the appeal. I am entitled to proceed on the assumption for the purposes of today that the findings and conclusions of Black J at first instance are correct.

Remuneration

1. [13]

   Turning again then to the first application before the Court, on 10 September 2021, Mr Hayes filed the application seeking determination by the Court of his remuneration as provisional liquidator of Sirrah pursuant to section 60-16(1)(a) of the Insolvency Practice Schedule (Corporations) (IPS), being Schedule 2 to the Corporations Act in the amount of $490,122.50 excluding GST. On 22 October 2021, Mr Hayes filed a Provisional Liquidator’s Remuneration Approval Report dated 22 October 2021, in which he seeks approval of his remuneration in the lower sum of $430,042.50 excluding GST for the period 14 October 2019 to 7 May 2021.

2. [14]

   In his affidavit evidence, Mr Hayes details the main tasks undertaken by himself and his staff in the 18-months during which he was appointed as provisional liquidator, including: dealing with court applications for approval to make interim distributions to shareholders, other applications and reporting; meeting with the company’s shareholders and directors; meeting with the company’s previous legal and accounting advisors; collecting and inspecting the company’s books and records; investigating the company’s affairs; applying for and undertaking public examinations of the company’s directors; assisting with these proceedings including complying with notices to produce; reporting to the Court and the parties in accordance with the Court’s orders, in particular by preparing the report and supplementary report; assisting the defendants’ solicitors to inspect the company’s electronic records; and statutory reporting.

3. [15]

   Mr Hayes’ Remuneration Approval Report explains that his remuneration has been calculated on a Time based / Hourly rates basis, because in his opinion this was considered the most appropriate means for calculating remuneration. The Remuneration Approval Report details the time and cost spent by Mr Hayes and his staff on each task area during the provisional liquidation, which included: Assets – 9.4 hours – $4,721.50; Creditors – 7.6 hours – $3,456; Correspondence with directors – 6.5 hours – $3,600; Preparation of Provisional Liquidators’ Reports – 206.4 hours – $86,707; Public examinations – 115.2 hours – $50,485.50; Investigations – 602.5 hours –$228,812; Correspondence and meetings with shareholders – 48.8 hours – $23,565; and Administration – 81.9 hours – $28,695.50. Mr Hayes’ total remuneration totalled $489,891, which was reduced by Mr Hayes to $59,848.50 following his review of the file.

4. [16]

   Section 60-16(1)(a) of the IPS provides that a provisional liquidator is entitled to receive such remuneration, by way of percentage or otherwise, as is determined by the Court. Section 60-16(2) relevantly provides that section 60-12 of the IPS applies in relation to a determination of a provisional liquidator’s remuneration under section 60-16(1). Section 60-12 of the IPS sets out the various matters to which the Court must have regard in determining whether the proposed remuneration is reasonable, which includes:

5. [17]

   Drawing on my judgment In the matter of Octaviar Administration Pty Ltd (in liq) [2020] NSWSC 927, the principles which govern determination of a liquidator’s remuneration are well summarised in In the matter of Primespace Property Investment Ltd (in liq) [2016] NSWSC 1821 at [29]-[33] per Black J; Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liq) v Sakr (2017) 93 NSWLR 459; [2017] NSWCA 38 per Bathurst CJ at [54]-[60] (with whom Beazley P, Gleeson JA, Barrett AJA and Beach AJA agreed) and Barrett JA at [71]; and In the matter of Plutus Payroll Australia Pty Ltd (in liq) [2018] NSWSC 1092 at [14]-[15] per Black J. In short:

6. [18]

   As to the last-mentioned point, Black J (on remitter from the Court of Appeal) explained in In the matter of Sakr Nominees Pty Ltd [2017] NSWSC 668 at [23]:

7. [19]

   Further, as Brereton J observed in In the matter of Dungowan Manly Pty Ltd [2016] NSWSC 1346 at [12]:

8. [20]

   In reviewing the liquidators’ claim for remuneration, I have adopted the approach of Black J in Sakr Nominees at [29]:

9. [21]

   The second and fourth defendants opposed the remuneration in the amount sought, or at all, on the basis that it was said to be the dilatory conduct of Mr Hayes which led to the problems now sought to be challenged on appeal. To this, Mr Hayes' counsel submitted that there was no basis for these complaints at the time, as is evident from fact that Black J rejected the complaints. Nor was there said to be any criticism of Mr Hayes in the Court of Appeal. Having reviewed the written submissions of the second and fourth defendants on appeal, I do note, however, that the submissions referred to a complaint that Mr Hayes did not provide them with access to records on a timely basis.

10. [22]

    Secondly, the second and fourth defendants complain that Mr Hayes' report is too ‘broad brush’ and contains scant detail so that the Court could not be satisfied that the remuneration sought is appropriate. To this, the liquidator says that the remuneration report is in the prescribed form and, although it is concise, this may be thought to benefit the Court.

11. [23]

    Further, the second and fourth defendants submitted that the liquidator may have questions to answer if they are successful on appeal; it is premature to approve the remuneration application now. I note, however, that there is no appeal against Black J's order to appoint Mr Hayes as liquidator, nor any appeal in respect of anything done by Mr Hayes whilst provisional liquidator. Nor do the grounds of appeal cavil with Mr Hayes' discharge of his duties as provisional liquidator.

12. [24]

    More importantly, the second and fourth defendants do not take any particular issue with any particular costs item or the quantum of any particular costs item. This makes it difficult for the Court to address the defendant's criticisms. As mentioned, I have the benefit of a remuneration report prepared by Mr Hayes together with a spreadsheet summarising the time spent and the charge-out rates by each of the staff retained by Mr Hayes who worked on the matter. The hourly rates of Mr Hayes and his staff appear reasonable. It is apparent from the provisional liquidator’s reports themselves that significant financial investigation was undertaken by Mr Hayes into the affairs of Sirrah. It is also apparent from the judgment at first instance of Black J that the financial affairs were complicated and a significant body of work was done. I can readily appreciate that a large number of hours would have been required to get to the bottom of the financial position of the company. It also appears that Mr Hayes' work has borne fruit, resulting in substantial judgments being obtained by Sirrah against the second and fourth defendants.

13. [25]

    Mr Hayes has reviewed the remuneration sought and written off some fees, in particular, the director who attended the examinations is now only charged at the lower rate of a supervisor. In addition, Mr Hayes has generally written off the fees, after review. That gives the Court some comfort that the net figure sought is reasonable.

14. [26]

    Overall, it appears that Mr Hayes and his staff spent, in total, five weeks of staff time preparing two liquidators' reports, which were each compendious. The public examinations took almost three weeks of staff time. The investigation of the company's affairs took some 15 weeks of staff time. Having regard to the reports and the judgment of Black J at first instance, those amounts do not seem unreasonable. Having reviewed the remuneration report and the evidence before the Court, I see no reason to depart from approving the remuneration in the amount sought by Mr Hayes and I do so.

Interim distribution

1. [27]

   During the provisional liquidation, Mr Hayes paid various amounts to the plaintiffs, which were recorded in the books of the company as interim shareholder distributions in favour of the Estate. More particularly, orders were made by Black J on 9 December 2019 for funds held in a trust account of the plaintiffs' solicitors in the amount of some $495,000 to be released to the plaintiffs and for those funds, together with some $240,000 previously paid to the Estate, to be recorded in the books of the company as an interim shareholder distribution in favour of the Estate. On 2 March 2020, Gleeson JA ordered Mr Hayes to pay a further $180,000 to the Estate such that, in total, an interim shareholder distribution has been made in favour of the Estate in the sum of $917,000.

2. [28]

   The plaintiffs have requested that Mr Hayes make a further interim distribution to the Estate as there are several beneficiaries of the Estate who are currently suffering considerable financial hardship. Mr Hayes seeks the Court’s special leave to make:

3. [29]

   Mr Hayes does not propose to make any pro rata interim shareholder distribution to William Harris or Harris Health Care at this time because they are presently jointly and severally indebted to the company for the judgment sum of $15,673,735, plus interest; Mr Harris is further indebted to the company for an additional judgment sum of $1,041,244, plus interest. Given their appeal, Mr Hayes has made a provision for a pro rata interim distribution to Mr Harris and Harris Health care, but proposes to withhold the payment of the distribution until the outcome of the appeal is known.

4. [30]

   As to the company’s current asset and liability position, the company’s current cash at bank totals approximately $8,326,478.16. The company also has other assets comprising trade and other receivables in the amount of at least $138,916; and judgment debts totalling $16,714,979, plus interest, owed by William Harris and Harris Health Care.

5. [31]

   The company’s current known liabilities total approximately $1,116,522. The company also has a liability to satisfy a costs order which was made against it in favour of the defendants in the second proceedings. The defendants’ costs have not yet been assessed or agreed, however Mr Hayes estimates that such assessed or agreed costs are unlikely to exceed $184,230.

6. [32]

   On this basis, Mr Hayes estimates that the company will still have cash at bank of approximately $2,778,570 in the event that the company paid all known creditors, paid the proposed interim distributions to the plaintiffs and Michelle Harris, made provision for the payment of the interim distributions to William Harris and Harris Health Care, paid in full the (disputed) amount of the defendants’ costs in the second proceedings, and paid the remuneration sought.

7. [33]

   Mr Hayes considers it appropriate to make the distribution sought, including because several beneficiaries of the Estate are suffering considerable financial hardship, Sirrah is not trading and has sufficient funds to do so. Mr Amirbeaggi complains that Mr Hayes has not given adequate consideration nor set out how provision will be made in the event that his clients succeed on the appeal or any further trial is needed should the matter be remitted for a re-trial.

8. [34]

   The plaintiffs’ solicitor submitted that an interim distribution should be ordered where the plaintiffs have borne the costs of the proceedings for some four years, where those costs were said to be high such that it was an appropriate order for the Court to make to alleviate the financial difficulties which thereby ensued. Against this, the second and fourth defendants submitted that there was no evidence of the value of the indemnity proffered by the plaintiffs in these proceedings, nor could Mr Hayes' calculation be relied upon where no attempt was said to have been made to take into account potential costs orders which may be made including, for example, if further proceedings were taken to the High Court. All of this was said to be premature given the outstanding appeal.

9. [35]

   Drawing on my judgment in In the matter of D & D Corak Investments Pty Ltd (in liq) [2020] NSWSC 1197 at [16], section 488(2) of the Corporations Act provides, “a liquidator may distribute a surplus only with the Court’s special leave.” Section 488(2) is intended to ensure that there is in reality a surplus, in that creditors’ claims have been recognised and met in full, and also to ensure that the correct relativities amongst contributories have been observed: CGU Workers Compensation (NSW) Ltd v Ascom Service Automation (Australia) Pty Ltd [2005] NSWSC 747 at [4] per Barrett J. The phrase “special leave” merely requires that a special application be made to the Court, rather than the matter being dealt with as part and parcel of some other administrative procedure: In the matter of Klaus Maertin Pty Ltd (in liq) [2009] NSWSC 618; (2009) 232 FLR 239 at [37]-[40] per Austin J citing In the matter of DS Millard & Son Pty Ltd (1997) 24 ACSR 71 at 72 per Young J.

10. [36]

    Having regard to Mr Hayes' analysis, even allowing for everything, there will still be $2,778,000 cash at bank. Further, so far as the Court of Appeal proceedings are concerned, the costs order which is sought by the appellants is not sought against Sirrah. This is consistent with the fact that it is the plaintiffs who had given an indemnity in these proceedings in respect of any costs orders which would otherwise be made against the company. Thus, even if the appellants succeed on appeal, this will not dilute the assets of the company. As various loan accounts are not challenged on appeal, the net asset position of the company is in fact stronger than that assessed by Mr Hayes and an additional $2 million can be comfortably added to the company's net asset position.

11. [37]

    Having regard to the evidence of Mr Hayes, which is not relevantly challenged by Mr Amirbeaggi in any concrete or specific manner, it appears to me that there is a substantial and sufficient surplus in the assets of Sirrah to do what is proposed. Creditors' claims have been recognised in the calculations. The company is in a position to meet the creditors' claims in full and also to pay a proportionate distribution to the second and fourth defendants should it become necessary to do so if they are successful on appeal. This seems to me to be no good reason to refrain from granting special leave to distribute a surplus at this stage. There is ample surplus remaining to address the concerns of the second and fourth defendants.

Stay application

1. [38]

   This then brings me to the stay application. The second and fourth defendants relied on my judgment in In the matter of Beverage Freight Services Pty Ltd [2020] NSWSC 1265 at [15]:

2. [39]

   In support of, or opposing, a stay, many of the same arguments were made by the parties as I have already set out. Mr Hayes also submitted that the balance of convenience favoured refusing a stay given the unchallenged evidence of difficulties being experienced by the beneficiaries of the Estate. Further, it was said that a stay would serve no purpose where there was a clear surplus from which to meet any further costs order which might be made against the company.

3. [40]

   Having regard to these matters, I do not consider that the appeal should impact upon the orders which I am being asked to make today. As matters presently stand, the second and fourth defendants owe the company some $16 million. If the appellants succeed on the appeal, then the amount that they owe the company will substantively reduce to the unchallenged amounts only. But that does not detract from the fact that – win, lose or draw – the net assets of the company are more than sufficient to remunerate the provisional liquidator, make an interim distribution and to pay costs orders in the second proceedings. There will still be some $2.77 million and indeed it now appears there will still be much more. Even assuming that there is a serious issue to be tried on the appeal, the balance of convenience does not support the making of a stay, not only for the reasons articulated by Mr Hayes' counsel, but because of the significant amount of money that is there to cover all concerns expressed by the respondents today. For these reasons I refuse the stay.

4. [41]

   In the result, I make the following orders:

   1. (1)

      Pursuant to section 488(2) of the Corporations Act 2001 (Cth) grant special leave to the liquidator to pay $1,300,000 to the plaintiffs, in their capacity as joint executors of the Estate of the Late Aileen Joyce Harris.

   2. (2)

      The amount referred to in Order 1 plus the amounts previously paid to the plaintiffs:

   3. (3)

      Pursuant to section 488(2) of the Corporations Act 2001 (Cth) grant special leave to the liquidator to pay $6,327,65 to the third defendant.

   4. (4)

      The amount referred to in Order 3 is to be recorded in the books of the first defendant as an interim shareholder distribution in favour of the third defendant in the amount of $6,327.65.

   5. (1)

      Pursuant to sections 60-16 of the Insolvency Practice Schedule (Corporations) at Schedule 2 of the Act, determine the remuneration of the provisional liquidator for the period 14 October 2019 to 7 May 2021 to be $430,042.50 (plus GST), payable forthwith out of the assets of the first defendant.

   6. (2)

      Order the applicant’s costs of the Interlocutory Process filed on 10 September 2021 to be paid out of the assets of Sirrah Pty Ltd.

   7. (1)

      Dismiss the Interlocutory Process filed on 6 December 2021.

   8. (2)

      Order the applicants, Harris Health Care Pty Ltd and William Harris, to pay the respondents’ costs of the Interlocutory Process.

ADDENDUM 30 December 2021

1. [42]

   I note that, since my ex tempore judgment, the Court of Appeal dismissed the appeal: Harris v Harris [2021] NSWCA 329.

ADDENDUM 4 January 2022

1. [43]

   On 31 December 2021, the applicant’s solicitor pointed out that the orders made recorded the remuneration as sought in the motion rather than the reduced amount sought at the hearing. Consequently, the following amendments were made under the slip rule: