In the matter of Cannuli Holdings Pty Ltd (in liq) (Court-appointed receiver acting)

1. [1]

   By way of background, Mr Michael Smith was appointed as liquidator to Cannuli Holdings Pty Ltd (in liq) (Court-appointed receiver acting) (“Company”) by an order made by this Court on 25 February 2015, on the application of the Chief Commissioner of State Revenue. The Company was formerly the trustee of the Cannuli Family Trust (“Trust”), but that appointment was vacated when it was placed in winding up, and the current trustee of the Trust is Cannuli Investments Pty Ltd (“Cannuli Investments”).

2. [2]

   By order made on 15 August 2016, Mr Smith was appointed by the Court as receiver of two properties owned by the Company situated at Glenfield, in New South Wales and Rocklea in Queensland. That order provided that Mr Smith as receiver of those properties have the powers that a liquidator would have in respect of the property of a company under s 477(2) of the Corporations Act 2001 (Cth) including the ability to pay creditors of the Trust from the proceeds of sale of the properties.

3. [3]

   The terms of the order by which Mr Smith was appointed as receiver also provided that:

4. [4]

   A further order made by the Court on that date also distinguished between the receiver’s remuneration, for which Court approval was required, and expenses in providing that:

5. [5]

   Mr Smith now applies for approval of his remuneration pursuant to that order. I made an order dispensing with the requirement for the filing of an Interlocutory Process on the basis that the orders that Mr Smith sought were adequately identified in Short Minutes of Order that were provided to the Court, which sought orders that Mr Smith’s remuneration as court-appointed receiver be approved in a specified amount inclusive of GST; that he be discharged from his appointment as receiver by the Court; and that his approved remuneration and expenses may be paid from a controlled monies account which holds the proceeds of sale of certain properties.

6. [6]

   The orders proposed by Mr Smith also note that he and Accolade Advisory Pty Ltd (“Accolade”), which claims to have security over property of the Company, have agreed that the total of his remuneration approved by the Court together with costs, expenses and disbursements will not exceed $155,000 inclusive of GST. Accolade had originally sought to contest aspects of the remuneration and expenses claimed by Mr Smith, but has withdrawn its opposition to Mr Smith’s claim and was excused from the hearing on the basis of that agreement. That agreement reflects a significant discount to the total amount of remuneration, costs, expenses and disbursements incurred by Mr Smith.

7. [7]

   I will first address the applicable legal principles, then the affidavit evidence led by Mr Smith in support of the application, and then reach a conclusion in respect of the application.

The applicable legal principles

1. [8]

   The principles applicable to the approval of a claim for remuneration by a court-appointed receiver are well established and no issue of controversy arises in respect of them in this application. A receiver’s right to recovery of expenses is analogous to a trustee’s right to indemnity: Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96; Re Stockford Ltd; Korda [2004] FCA 1682; (2004) 140 FCR 424; 52 ACSR 279 at [50]; AAA Financial Intelligence Ltd (in liq) (No 2) [2014] NSWSC 1270; (2014) 32 ACLC 14052; Re Wine National Pty Ltd [2016] NSWSC 4 at [12]. Mr Martin, who appears for Mr Smith, referred to my summary of the relevant case law in Re Wine National Pty Ltd above at [13]ff, where I observed that:

2. [9]

   In Re Anglican Development Fund Diocese of Bathurst Board (recs and mgrs apptd) [2017] NSWSC 967 at [12], I summarised the applicable principles as follows:

The affidavit evidence

1. [10]

   Mr Smith relies on his affidavit dated 22 September 2017, on which I have drawn for part of the chronology of events that appears above. Mr Smith’s evidence is that he is a member of the Australian Restructuring Insolvency and Turnaround Association and observes the principles and standards of conduct prescribed by the ARITA Code of Professional Practice for Insolvency Practitioners, which include principles in respect of remuneration. Mr Smith also refers to the staff who have worked on the receivership and their respective experience.

2. [11]

   Mr Smith refers (Smith 22.9.17 [20]ff) to the work undertaken in respect of the Company’s property at Rocklea and to the fact that the valuation of that property is less than the amount owed by the Company to a secured lender on that property, Kiriwina Investments Pty Ltd, and expresses the view that there is no utility in his selling that property as there would be no sale proceeds available for distribution.

3. [12]

   Mr Smith also refers to steps which he took in respect of the Company’s Glenfield property, including initial negotiations with Mr Cannuli as to possible payment of creditors, which did not eventuate, and to steps taken after Mr Smith’s appointment as receiver of that property to obtain a valuation of that property and to commence marketing that property from April 2017. That property was ultimately sold at auction, although settlement was delayed at the purchaser’s request to mid-September 2017. The proceeds of sale, less the amount owed to the mortgagee of the property and costs, are now held by Mr Smith in a controlled monies account in his capacity as receiver of the property.

4. [13]

   Mr Smith also refers to events that affected the sale of the property, including discussions with Mr Cannuli in January 2017 in respect of the possible interest of a purchaser in the property, and caveats initially lodged over the property by Armstrong Scalisi Holdings Pty Ltd (“ASH”) and Euston One Pty Ltd (“Euston”) which are entities are associated with Mr Sam Cassaniti who is also associated with Accolade. Those caveats relied on the terms of engagement for services allegedly provided by ASH to the Company and in the case of Euston’s caveat, a document titled ‘Deed of Loan’, Mr Smith refers to the steps that he took to investigate the basis of those caveats. The caveats lodged by ASH and Euston were subsequently withdrawn, although there were delays arising from the form of those withdrawals, and from Land and Property Information’s delay in processing those withdrawals until it had confirmed their status with Accolade. In the event, those caveats were ultimately removed in late April 2017.

5. [14]

   Mr Smith refers to steps taken to sell and market the Glenfield property from late January 2017, and to steps which were then taken to resolve the position in respect of tenants including persons associated with Mr Cannuli who Mr Smith had discovered were living on that property. A further application was made to the Court in that respect, although that application was ultimately resolved by agreement with those tenants who vacated the property prior to settlement of its sale.

6. [15]

   Mr Smith also refers to the further issues which then arose from the lodgement of a further caveat by Accolade in March 2017, claiming a different interest in the property from that previously claimed by ASH and Euston, in reliance on a deed of agreement dated 24 September 2015. Mr Cannuli then claimed, by statutory declaration, that he had not signed the deed of agreement or associated documents and that claim is presently the subject of ongoing proceedings in the Court. Mr Smith sets out the steps which were subsequently taken by him and his solicitors to investigate the validity of the deed of agreement and to his attempt to obtain documentation from Accolade to support its caveat. Mr Smith made a further interlocutory application to the Court for the removal of that caveat and Accolade in turn brought its own application in respect of that caveat. Mr Smith also refers to the engagement of a handwriting expert in order to review issues as to the authenticity of documents on which Accolade relies, given Mr Cannuli’s denial that he had signed those documents. It is not necessary to address that matter further, where costs referable to that matter are disbursements which do not require the Court’s approval in this application. A withdrawal of that caveat was subsequently provided prior to the settlement of the sale of the property.

7. [16]

   Mr Smith also refers to the substantial recoveries made in the receivership, including the sale proceeds of the Glenfield property, interest payable by the purchaser in respect of the delayed settlement, and rent proceeds in respect of the Rocklea property which have been applied to payments due to the mortgagee of that property. Mr Smith in turn refers to the steps which have been taken to record chargeable time by his firm and to the practices which he and members of his staff have adopted in respect of time recording. Mr Smith leads evidence of the time recorded in respect of the receivership, sorted by activity, over the relevant period, and also sorted by employee over that period.

8. [17]

   The total remuneration claimed by Mr Smith is $88,610.50 excluding GST and his total expenses (for which separate approval is not required, given the orders previously made by the Court) are $180,964.78 excluding GST. The substantial part of those expenses is comprised of legal fees, although agency fees, including commissioning and marketing costs, were also incurred in respect of the sale of the Glenfield property. Mr Smith contemplated that, following his discharge as receiver, he would continue to hold relevant funds in trust for the parties to the ongoing proceedings in which entitlement to those funds is in contest. I will ultimately not make an order discharging Mr Smith as receiver, although I will narrow the scope of his appointment as noted below.

9. [18]

   By his further affidavit dated 13 October 2017, Mr Smith responded to Accolade’s objections to his claim for remuneration and expenses although, as I noted above, no question as to expenses arises in this application.

Determination

1. [19]

   I first address Mr Smith’s claim for approval of his remuneration. Mr Martin pointed out that the remuneration claimed by Mr Smith related to his work on matters involving the caveat lodged by ASH, the caveat lodged by Accolade, the position in respect of other caveators, tenants at the Glenfield property to which I have referred above, dealings with the Glenfield property generally and the Rocklea property. I have referred to Mr Smith’s evidence as to the work done in respect of those matters above.

2. [20]

   Mr Martin submits, and I accept, that the work done by Mr Smith was within the scope of his appointment, which required that he realise the properties held by the Trust and that that required him to investigate the legitimacy of claims against the title of those properties and, where necessary, address issues as to their removal or recognition to allow a settlement of the sale of the Glenfield property. Mr Martin points out, and I also accept, that Mr Smith proceeded on that basis in investigating the several unregistered interests recorded on the title to the Glenfield property, taking steps to secure the withdrawal of the caveats lodged by ASH and Euston, dealing with tenants on the Glenfield property and addressing the subsequent caveat lodged by Accolade in a manner that ultimately permitted the completion of the sale of that property. Mr Martin also submits, and I accept, that unless Mr Smith had addressed the issues as to the title of the property, it would either have been sold for a significantly lower price, or, I would add, it may have been unsaleable.

3. [21]

   As I noted above, Accolade’s objections to Mr Smith’s remuneration are no longer pressed given the agreement reached between Mr Smith and Accolade to which I referred above. I have nonetheless had regard to the various criticisms made by Accolade and Mr Smith’s response to them to the extent that they are relevant to the question of Mr Smith’s claim to remuneration. I do not consider that those criticisms are such as to deprive Mr Smith of any part of the remuneration claimed. First, the orders made by the Court contemplated that he had a responsibility for distribution of the sale proceeds of the properties to creditors, which necessarily contemplated that he should seek to form a view as to who was entitled to those sale proceeds and as to the validity of the claims made by Accolade. Second, Mr Smith could scarcely have disregarded a claim made by Mr Cannuli, on oath, that the documents on which Accolade relied were falsified, and seems to me to have properly taken that claim seriously and taken steps to investigate it. In the event, that claim will now be determined in proceedings between Accolade and the other parties interested in it, without the need for Mr Smith to take a continuing role in its resolution. I recognise that Accolade also advanced, although it did not press, criticisms of the steps taken by Mr Smith to explore the prospect that Mr Cannuli may pay out unsecured creditors and to pursue a possible sale to the purchaser for the Glenfield property introduced by Mr Cannuli. I recognise that neither came to pass, but it seems to me that, without hindsight, it cannot be said to have been unreasonable for Mr Smith to investigate those possibilities.

4. [22]

   Mr Martin points out, and I accept, that the substantial part of the work done on the receivership was done by three people, Mr Smith and a manager and supervisor under his supervision, although several other staff provided assistance at lower rates. The amount of time spent by Mr Smith was less than the amount of time spent by either the manager or the supervisor, which would reduce total remuneration claimed, and the average hourly rate for which remuneration is claimed is less than half of Mr Smith’s hourly rate. I am satisfied that work was properly distributed between members of Mr Smith’s staff, in circumstances that the issues were of some complexity and there was therefore justification for the use of more senior staff in respect of them. Mr Martin also points out that the amount of time spent by Mr Smith and his staff, which totals about 30 work days over a 12 month period, does not seem to be disproportionate to the nature of the matters in issue. Mr Martin also points out, and I accept, that a comparison of the recoveries made to the remuneration claimed by Mr Smith does not indicate any disproportionality in the time spent against the value of the property recovered. Mr Martin submits, and I accept, that the Court can be satisfied that the amount of remuneration claimed is proportionate to the amounts recovered by Mr Smith; that the work which is the subject of the claim was performed at an appropriate level of seniority and that there is no evidence to suggest that it was excessive or unnecessary; and that the amount claimed is not inappropriately large for the amount of work that was done.

5. [23]

   Mr Martin also addresses the receiver’s claim for costs and expenses but, as I have noted above, the Court’s specific approval of those costs and expenses is not required in this application.

6. [24]

   Mr Smith also sought an order that he be discharged from his appointment as receiver by the Court. The Court can properly make such an order where a court-appointed receiver has completed the work for which he has been appointed. I recognise that Mr Smith has completed the sale of the Glenfield property and it seems to me that he has reasonably formed the view that there would be no useful purpose in the sale of the Rocklea property, which can be left to be dealt with by Cannuli Investments and the mortgagee of that property, subject to Mr Smith giving notice to them of that position. However, Mr Smith continues to hold substantial funds in a controlled monies account, and there are competing claims to those funds that are the subject of other proceedings in this Court. In those circumstances, it seems to me preferable that the Court should not terminate the receivership, but limit its scope so that Mr Smith will continue to hold those funds in the capacity of court-appointed receiver, and will be remunerated for the minimal work that is likely to be involved in doing so, until the determination of the Court proceedings as to the entitlement to those funds.

7. [25]

   Accordingly, I make the following orders: