In the matter of Baixin Group Pty Ltd (administrators appointed)

These reasons concern an application by the first plaintiffs in these proceedings, Mr Sule Arnautovic and Mr Andrew Spring (the Applicants), in respect of their remuneration for work in their capacities as voluntary administrators and subsequently deed administrators of Baixin Group Pty Limited (the Company) and receivers and managers of the assets and undertaking of the Baixin Investment Unit Trust (the Trust).

The application was made by interlocutory process filed on 12 January 2022 and supported principally by an affidavit of Mr Arnautovic affirmed on 24 April 2020 and an affidavit of Mr Spring affirmed on 13 December 2021.

The Applicants also relied on an affidavit of Ms Mary Daoud, solicitor, which established that shareholders and creditors of the Company and unit holders of the Trust were notified of the interlocutory application. The Australian Securities and Investments Commission (ASIC) was also notified. Mr Krochmalik of counsel appeared for the Applicants on the hearing of the interlocutory application on 7 February 2022. There was no appearance on behalf of shareholders, creditors, unit holders or ASIC.

For the reasons that follow, I have decided to make orders determining the Applicants’ past remuneration in the amount sought, determining their future remuneration in an amount up to the capped amount sought, permitting their remuneration to be paid out of the assets of the Trust and discharging and releasing them as receivers and managers upon the filing of their final account with the Court. For abundant caution, there will be an order granting liberty to the shareholders, creditors, unit holders and ASIC to apply to vary those orders, such liberty to expire four weeks after the last date for filing of the final account.

The Applicants were appointed as voluntary administrators of the Company on 20 February 2020. The appointment was made by resolution of the creditors of the Company at the first creditors meeting. The Applicants replaced administrators that had been appointed ten days earlier by special resolution of the Company’s shareholders.

The Applicants’ initial investigations indicated that the Company carried on business solely in its capacity as trustee of the Trust and owned three real properties and shares in four companies that conducted a chain of restaurant businesses. It appeared from those initial investigations that all of those assets had been held by the Company on the terms of the Trust, save for some uncertainty in relation to the shares in two of the companies that conducted the restaurant businesses.

The trust deed in respect of the Trust provided that the office of the trustee became vacant in the event that an administrator was appointed to the trustee. No steps were taken to appoint a new trustee after the appointment of the first administrators by special resolution of the Company’s shareholders on 10 February 2020. Accordingly, the Company has been a bare trustee of the assets of the Trust since that time. As a bare trustee, the Company has an obligation to safeguard the assets of the Trust. The Company’s right of indemnity against the assets of the Trust and an equitable lien to secure that right of indemnity has survived the vacation of the office of trustee under the trust deed. [1]

A proposal emerged for a deed of company arrangement in respect of the Company that contemplated dealings with the Trust assets. In that context, Black J made orders on 28 April 2020 appointing Mr Arnautovic and Mr Spring as receivers and managers of the assets of the Trust, with all of the powers that a receiver has in respect of the business and property of a company under s 420 of the Corporations Act 2001 (Cth). Black J made an order that the receivers not distribute the assets of the Trust to creditors or beneficiaries without the further direction of the Court, other than in respect of any lawful distribution authorised by a deed of company arrangement. His Honour also ordered that the costs, expenses and remuneration of the receivers in acting as the receivers and managers of the assets and undertaking of the Trust be paid from the Trust assets.

The Applicants’ further investigations confirmed that “substantially all of the operations and business carried on by the Company was done so in its capacity as trustee of the Trust” and that “the Company was at all times operating and carrying on business at least substantially (if not completely) in its capacity as trustee of the Trust”. Accordingly, the Applicants take the view that all of the liabilities of the Company were incurred in its capacity as trustee of the Trust.

That view is well supported by the available evidence. The Applicants’ affidavits do not identify any business activities of the Company that were not carried on in its capacity as trustee. The Applicants’ further investigations in relation to the ownership of the shares in the two companies referred to at [6] above revealed strong evidence that the Company had held those shares in its capacity as trustee of the Trust and consequently held those shares as bare trustee from the time of the appointment of administrators to the Company. All general ledgers maintained by the Company were general ledgers for the Trust. Those general ledgers included two accounts labelled as investments in the two companies in question, which recorded loans made by the Trust to those two companies that the Applicants believe relate to the Company’s shareholding in the two companies.

On 2 June 2020, the Applicants executed a deed of company arrangement (DOCA) on behalf of the Company and as deed administrators. The DOCA represented the outcome of the discussions and negotiations that commenced prior to the orders made by Black J appointing the Applicants as receivers and managers of the Trust assets and undertaking.

The DOCA provided for the Company’s director, Mr Yi Jiang, to contribute $450,000 to a deed fund that was to be distributed to creditors after payment of the costs and remuneration of the voluntary administrators, the receivers and the deed administrators and any liabilities incurred by the administrators and deed administrators in connection with the administration of the Company and the administration of the DOCA.

The $450,000 contribution was required to be paid in two instalments. The first instalment was payable on the date of satisfaction of certain conditions (including the execution of a deed deferring the claims of certain creditors of the Company) and the second instalment was payable on completion of the DOCA.

In consideration for performance of Mr Jiang’s obligations under the DOCA, the deed administrators were obliged to cause the transfer or assignment to “NewCo” of the Company’s shares in the four companies referred to at [6] above and all real property registered in the name of the Company. “NewCo” was a company to be established and controlled by Mr Jiang or a company nominated by Mr Jiang.

Completion of the DOCA, including the transfer of the Trust assets as referred to immediately above, ultimately occurred on 18 September 2020. The Applicants as deed administrators had agreed to several extensions of time for completion requested by Mr Jiang in consideration for an increase to the amount of Mr Jiang’s contribution to the deed fund.

The only matter that remains outstanding under the DOCA is for the Applicants as deed administrators to pay a final dividend from the deed fund in accordance with the provisions of the DOCA referred to at [12] above. The DOCA will then terminate by operation of clause 18.2(a)(iii).

Orders determining the amount of the Applicants’ remuneration as administrators, receivers and managers and deed administrators are the only orders that are required before a final dividend can be paid to creditors. The deed fund comprises the proceeds of the assets of the Trust. The distribution of the fund to creditors of the Company in accordance with the DOCA (including the provision requiring the Applicants’ remuneration to be paid first) is authorised by the orders made by Black J on 28 April 2020. As the Applicants submitted, the distribution of the deed fund to creditors of the Company gives effect to the Company’s right of indemnity, as the former trustee of the Trust.

The Applicants seek orders determining their remuneration in their capacity as administrators, receivers and managers and deed administrators. The Applicants find it difficult to distinguish between their remuneration for work done in their different capacities because, according to Mr Spring’s evidence, there is considerable overlap between the work done in those capacities. By way of example, Mr Spring explains that the work done to achieve completion of the DOCA was done in the Applicants’ capacity as deed administrators in that the work was required by the DOCA, but was also done in their capacity as receivers and managers of the Trust assets because it was necessary to preserve and realise the assets of the Trust for the benefit of the creditors to whom the Company had incurred liabilities in its capacity as trustee.

The interlocutory process stated that the total amount of the Applicants’ remuneration was $163,079 (excluding GST). During the hearing of the interlocutory process, that amount was increased to $179,557 (excluding GST). The increase resulted from the correction of a mathematical error in adding the various components of the remuneration described in Mr Spring’s affidavit.

Almost all of the remuneration that is the subject of the present application was approved by resolutions of the Company’s creditors passed at the adjourned second creditors’ meeting on 20 May 2020. All but one of the resolutions were passed by the creditors unanimously. In relation to the one resolution that was not passed unanimously, no creditor voted against the resolution. One creditor abstained from voting.

At the time the creditors’ resolutions were passed, the Applicants did not appreciate that their remuneration was required to be determined by the Court. Consequently, the Applicants withdrew $153,069.50 from the deed fund for their remuneration, being almost the whole of the amount purportedly approved by the creditors’ resolution.

The Applicants seek:

I am satisfied by Ms Daoud’s affidavit referred to at [3] above that the interlocutory process was served on shareholders and creditors of the Company, unit holders of the Trust and ASIC prior to the hearing on 7 February 2022. As I have already mentioned, there was no appearance on behalf of any person other than the Applicants at that hearing.

To the extent that the application is for determination of the Applicants’ remuneration as court-appointed receivers of the Trust assets, the principles summarised by Brereton J (as his Honour then was) in Re Say Enterprises Pty Ltd apply: [2]

To the extent that the application relates to the Applicants’ remuneration for work undertaken in their capacity as voluntary administrators, and later deed administrators, of the Company, the Applicants invoke the Court’s inherent equitable jurisdiction to allow a trustee remuneration, costs and expenses out of trust assets. That jurisdiction extends to persons such as liquidators and administrators who are, for all practical purposes, controlling a trustee. [3]

The Applicants’ submissions refer to the judgment of Brereton J in Re North Food Catering Pty Ltd, [4] in which his Honour summarised the position as follows, drawing on the judgment of Black J in Re IMF Global Australia Ltd (in liq) (No. 2) [5] :

In that case, Brereton J concluded following a review of relevant authorities that, where a company’s sole business has been to act as trustee of a trust and the company has no assets other than the assets that it holds on the terms of the trust, liquidators of the company are entitled to be paid their remuneration for their work in administering the trust assets and for their general liquidation work out of the trust assets. [6]

The principles applicable to the inherent equitable jurisdiction are those summarised by Gleeson J in In the matter of BBY Ltd (receivers and mgrs. apptd) (in liq): [7]

As s 60-10 of the Insolvency Practice Schedule (Corporations) is not directly applicable to the present application, I need not be troubled by the unusual circumstance that most of the remuneration in respect of which orders are now sought has already been approved by a resolution of creditors of the Company. If s 60-10 did apply to the present application, that circumstance would preclude the Court determining the remuneration. [8]

As the Applicants submitted, and as will be apparent from the principles extracted above, there is no substantive difference between the principles to be applied in determining their remuneration as external administrators in the exercise of the Court’s inherent equitable jurisdiction referred to above and the principles that apply to the determination of their remuneration as court appointed receivers and managers of the assets and undertaking of the Trust.

Despite the overlap between the Applicants’ roles as voluntary administrators and deed administrators on the one hand and their role as receivers and managers of the Trust assets on the other hand, the Applicants have undertaken an exercise of retrospectively allocating items of work carried out to one of those roles. The Applicants have then adopted that allocation structure in presenting evidence of the time taken and the amount of remuneration claimed in respect of work done by the Applicants and their staff. The itemised time records and the remuneration summary for each of those three categories are further broken down into the sub-categories of administration, assets, creditors and investigation.

The total remuneration recorded in the remuneration summaries for work done to date amounts to $175,197.50, being:

The total amount of $175,197.50 relates to work that has in fact been done and does not include any allowance for work that remains to be done. The Applicants have discounted the amount claimed for past work in the present application to $167,557, as referred to at [22] above.

On the basis of my broad review [9] of the itemised time records and Mr Spring’s evidence describing the work undertaken, I accept the Applicants’ submission that the work may be summarised as follows:

With the exception of the two last mentioned items, all of the work referred to above was completed by the end of 2020. Proofs of debt were called for and adjudicated upon during the period between completion of the DOCA on 18 September 2020 and the end of November 2020. Thus, very little work has been done and very little remuneration is charged in respect of the 2021 calendar year.

As the Applicants submitted, most of the work was undertaken in connection with the DOCA, through which substantial assets were realised through contributions to the deed fund totalling $495,000 for the benefit of the Company’s creditors. When those contributions are added to cash at bank, rent received, GST and tax refunds and a small amount of interest, total receipts in respect of the Company were $535,605.81.

I am satisfied that the work described above was reasonably necessary in the circumstances of this administration, deed administration and receivership, having regard to the Company’s former role as trustee of the Trust and ongoing obligations as bare trustee, the litigation affecting one of the assets held by the Company as bare trustee, the manner in which the DOCA negotiations played out and the numerous subsequent requests for extensions of time for completion of the DOCA and the value of creditors’ claims.

The amount of remuneration claimed for work done to date has been calculated on a time-costed basis.

Mr Spring deposes that tasks required to be undertaken during the administration, deed administration and receivership were delegated to and handled by staff with an appropriate level of seniority, knowledge and skill for that specific task.

My review of the remuneration summaries and itemised time records reveals that most of the work has been done by Mr Otim Oluk, a senior manager with over 15 years’ experience in business recovery, reconstruction and insolvency at a charge out rate of $565 per hour. A significant amount of work was also done by each of the Applicants (with charge out rates of $645 per hour) and Mr Jaidon Neaves (with a charge out rate of $395 per hour). Mr Neaves is a senior analyst with five years’ experience. Other work has been done by administrative staff charged at lesser rates. I am satisfied based on my broad review of these records that the work has been undertaken in a reasonable manner, in that it has been appropriately allocated between the Applicants and their staff, with the more complex tasks such as the DOCA negotiations being undertaken by the Applicants or Mr Oluk and less complex tasks being undertaken by Mr Neaves or more junior staff. I consider that the hourly charge out rates are within with the range of rates commonly charged in the insolvency industry.

As I have already mentioned, no creditor, shareholder or unit holder appeared at the hearing of the interlocutory application to oppose the orders sought in respect of the Applicants’ remuneration. On the contrary, the Company’s creditors had already passed resolutions purporting to approve most of that remuneration. Although that is not determinative, it does indicate the creditors consider remuneration in the order of the amount now sought to be reasonable. That is a relevant matter in circumstances where the receipts referred to at [36] above are significantly less than the creditors’ admitted claims referred to at [34(10)] above, so that, for practical purposes, the creditors are the only persons with an interest in the amount of the Applicants’ remuneration.

Taking into account all of the matters referred to at [31]-[41] above, and having regard to the proportionality of the total remuneration for past and future work referred to at [45]-[46] below, I am satisfied that the amount of $167,557 (excluding GST) claimed in respect of remuneration for work undertaken to date is a fair and reasonable reward for that work and it is appropriate to make orders determining the Applicants’ remuneration for that work in that amount.

As a result of that work, the whole of the assets of the Company and the Trust have been realised through completion of the DOCA.

Mr Spring describes the work that the Applicants now expect to undertake as involving drawing the balance of the Applicants’ remuneration, [10] paying the first and final dividend from the deed fund to participating creditors under the DOCA and lodging final accounts as receivers and managers of the Trust assets. I accept that this work is necessary, but there was no evidence of the basis of the $12,000 estimate which prima facie appears to be on the high side. Counsel for the Applicants accepted that an order in respect of future remuneration could be made in terms capping the amount approved at $12,000 (excluding GST). I consider that this is an appropriate means of determining the future remuneration now and avoiding the costs of a further court hearing, with the cap operating as a safeguard for the creditors interested in receiving a distribution from the deed fund.

In my opinion, the total past and future remuneration of $179,557 (excluding GST) is proportionate to the nature, extent and complexity of work done over the course of approximately one year and is not disproportionate to the receipts generated by that work, representing approximately 33 per cent of those receipts.

Mr Spring estimates that the return to ordinary creditors [11] will be about 8 cents in the dollar after the Applicants’ remuneration, costs and expenses are deducted from the receipts of $535,605.81. This relatively low return to creditors reflects the high value of creditors’ claims and the Applicants’ legal fees and expenses of $151,171.30 that are also to be paid out of the receipts. It is unsurprising that the Applicants have incurred legal fees in that amount having regard to the necessary application to this Court for the appointment of the Applicants as receivers and managers of the Trust assets and undertaking, the legal advice obtained by the Applicants concerning the DOCA, and the Company’s involvement in the litigation concerning Lotus Barangaroo Pty Limited referred to at [34(8)] above.

I accept the Applicants’ submission that, because the Company’s activities were conducted in its capacity as trustee of the Trust, the proper remuneration of the Applicants in the receivership and in the external administration of the Company are debts incurred by the Company in performing its role as trustee for which the Company is entitled to be indemnified out of the deed fund, which represents the proceeds of the Trust assets. [12]

I accept that the Applicants’ previous withdrawal of $153,069.50 from the deed fund for their remuneration was an innocent mistake, and that creditors and ASIC were informed of the mistake. I also accept that the premature withdrawal has occasioned no prejudice to creditors or unit holders in circumstances where the Court has now determined the Applicants’ remuneration in a sum greater than the amount withdrawn to date. I am therefore satisfied that it is appropriate to make an order substantially in the terms of prayer 2 of the interlocutory process approving nunc pro tunc the payment of the Applicants’ past remuneration in the amount of $167,557 (excluding GST) out of the assets of the Trust. [13]

As the Applicants submitted, at general law, a court-appointed receiver may be discharged where the object of the appointment has been achieved. [14]

Mr Spring has given evidence that the Applicants have not engaged in any act or default that is likely to give rise to any liability to any creditor or beneficiary (noting that the drawing of part of their remuneration prior to court approval has not prejudiced any creditor, as referred to above). Nor has any creditor or beneficiary foreshadowed any claim against the Applicants. In those circumstances, I accept the Applicants’ submission that it is appropriate that they be discharged once the receivership has been concluded by the proposed distribution of the Trust assets in accordance with the DOCA and the filing of their final account with the Court, subject to allowing a period of time for any presently unknown claims of creditors or beneficiaries to emerge. [15]

I am satisfied that it is appropriate to facilitate that discharge and release by making orders substantially in the form proposed by the Applicants, which will result in the Applicants being discharged and released on the filing of their final account subject to interested persons having liberty to apply to set aside those orders within a period of approximately four weeks after the filing of their final account. That form of order has been employed in several previous cases.

For the foregoing reasons, I make the following orders: