In the matter of J & Lee Property Investment Group Pty Limited (in liquidation)

1. [1]

   HER HONOUR: This is an application for approval of receivers’ remuneration in circumstances where remuneration for part of the work has already been approved by creditors as liquidator’s remuneration. Peter Hillig has been the liquidator of J & Lee Property Investment Group Pty Limited since February 2017. Peter Hillig and Michael Smith have been joint and several receivers and managers of the J & Lee Group Trust, of which J & Lee Property Investment Group is trustee, since 16 August 2017.

2. [2]

   The receivers seek approval of remuneration of $199,885.68 including GST from their appointment until 30 June 2019. Mr Hillig has not received the liquidator’s remuneration approved by the creditors and, in the event that the receivers’ remuneration is approved, Mr Hillig undertakes to ensure that he will not draw the same fees as liquidator of the company. Such an undertaking is appropriate as Mr Hillig should obviously not be paid twice.

3. [3]

   On 9 April 2008, J & Lee Property Investment Group was incorporated. At all relevant times, Seong Won Lee was the sole officeholder of the company. Seong Won Lee, according to the records of the Australian Securities and Investments Commission, comes from South Korea.

4. [4]

   On 15 May 2009, the J & Lee Group Trust was settled. The original unitholders of the trust were Seong Won Lee, Seul A Lee and Elisabeth Park. There is no register of unitholders and it is unclear whether they remain unitholders. J & Lee Property Investment was appointed as trustee. The trust deed contained an “ipso facto clause”, such that the company became disqualified from holding office as trustee if the company went into liquidation.

5. [5]

   The company was the registered proprietor of three properties: one at Mascot, one at Vineyard and one at Liverpool Street, Sydney. Although it is not entirely clear, it would appear that the Mascot and Vineyard properties were trust assets but the Liverpool Street property was not. The properties had a combined value of some $20 million.

6. [6]

   In about May 2010, the New South Wales Crime Commission commenced proceedings against the company and others to recover proceeds said to be derived from illegal activities. On 30 October 2015, consent orders were made in those proceedings, including an order that the company pay $8.5 million to the Treasurer.

7. [7]

   On 21 December 2016, these proceedings were commenced in the form of an application to appoint a liquidator to the company under section 459A of the Corporations Act 2001 (Cth). The company had failed to comply with a statutory demand issued by the Chief Commissioner of State Revenue for some $118,000 in unpaid land tax in respect of the three properties of which the company was registered proprietor. On 13 February 2017, Peter Hillig was appointed as liquidator to the company. On 22 February 2017, Mr Hillig retained solicitors on a speculative basis, such that the solicitors would receive a 25% uplift in their fee upon the successful recovery of funds in the matter.

8. [8]

   As a consequence of the appointment of a liquidator to the company, J & Lee Property Investment Group was automatically disqualified as trustee of J & Lee Group Trust and the liquidator held any trust properties as a bare trustee. By reason of this, the liquidator applied to be appointed as a receiver and manager of J & Lee Group Trust. On 16 August 2017, Brereton J appointed Mr Hillig and Michael Smith as receivers and managers of the assets and undertaking of the J & Lee Group Trust: In the matter of J & Lee Property Investment Group Pty Limited [2017] NSWSC 1115. His Honour noted at [9]:

9. [9]

   His Honour noted that it appeared likely that there would be a surplus of assets after payment of the company’s debts and an application to terminate the winding up might well succeed but, after repeated adjournments to permit such an application to be made, none had been. His Honour considered that the Court could not indefinitely defer dealing with the liquidator’s application to afford the directors an opportunity to apply to terminate the winding up, which they appeared to be unwilling to do, but his Honour proposed to incorporate conditions to minimise any irrevocable prejudice.

10. [10]

    His Honour considered that it was appropriate to appoint the liquidator as a receiver of the company’s trust assets in order to make it clear beyond question that the liquidator had control of all of the assets in the company’s name. However, in light of the very considerable surplus of assets over liabilities and because of proceedings in another division of the Court to set aside or vary the proceeds of crime order , his Honour imposed a condition that the receivers not sell the trust properties without the leave of the Court in order to preserve any opportunity to apply to terminate the winding up. His Honour also refrained from determining whether apparent trust assets were in fact trust assets and suggested that the liquidator could apply for advice in due course as to whether he would be justified in treating certain assets as trust assets. Amongst the orders made by his Honour were:

11. [11]

    Following their appointment as receivers, Mr Hillig and Mr Smith created a separate file within their firm. Time spent attending to tasks associated with the liquidation was recorded on one file, whilst time spent attending to tasks associated with the receivership was recorded on another. The details of the time spent, by whom and on what tasks are contained in Work In Progress (WIP) reports printed from the firm’s practice management system.

12. [12]

    On 24 May 2018, Seong Won Lee was sentenced to a period of imprisonment.

13. [13]

    On 25 October 2018, the receivers filed an Interlocutory Process seeking directions empowering them to sell the Mascot and Vineyard properties. On 12 November 2018, Parker J granted leave to the receivers to sell the properties and to pay the costs and expenses of the sales and of the application: In the matter of J & Lee Property Investment Group Pty Limited (No 2) [2018] NSWSC 1728. At [12]:

14. [14]

    On 21 February 2019, the liquidator’s and receivers’ solicitors attempted to notify the original unitholders of an application to lift the stay granted by Parker J. The letter to Seul A Lee was returned, and there was no reply to the letter to Elisabeth Park. Mr Hillig has not otherwise been able to locate or communicate with these original unit-holders.

15. [15]

    On 21 and 25 January 2019 and 6 February 2019, the liquidator’s and receivers’ solicitors also wrote to Seong Won Lee in prison, informing him that they intended to apply to lift the stay. On 13 February 2019, the solicitors served their submissions in support of the application to lift the stay on Seong Won Lee. On 25 February 2019, I granted the application to lift the stay: In the matter of J & Lee Property Investment Group Pty Ltd (unreported).

16. [16]

    On 3 April 2019, contracts were exchanged to sell the Vineyard property for $905,000. On 12 April 2019, contracts were exchanged to sell the Mascot property for $17.49 million.

17. [17]

    On 8 May 2019, Seong Won Lee was released from prison but was detained by the Department of Home Affairs, as an order had been made for Mr Lee to be deported to South Korea. On 20 May 2019, Mr Hillig sent an email to Seong Won Lee asking for the current address of Seul A Lee and Elisabeth Park, and information as to any relation between these unitholders and him.

18. [18]

    On 24 May 2019, the proceeds of sale of the Mascot and Vineyard properties were paid to the receivers, comprising some $17.5 million. From the proceeds of sale, some $1.7 million is payable for goods and services tax. The proceeds available for distribution are $15,784,963.29. On 31 May 2016, a report to creditors was issued. The creditors are the New South Wales Crime Commission, a strata manager, the Australian Taxation Office, Mr Lee’s solicitors and various members of Mr Lee’s family who advanced funds to the company.

19. [19]

    On 18 June 2019, Seong Won Lee replied to Mr Hillig’s email of 20 May 2019:

20. [20]

    On 25 June 2019, the creditors of the company approved the liquidator’s remuneration as follows:

21. [21]

    On 5 July 2019, the liquidator’s and receivers’ solicitors sent an email to Seong Won Lee with submissions and evidence in support of the current application. This material was also sent to the New South Wales Crime Commission, which has indicated that it does not oppose the orders sought. On 8 July 2019, the liquidator and receivers were granted leave by Black J to amend the Interlocutory Process to now seek the following orders in respect of remuneration:

22. [22]

    The reason for the amendment is twofold. First, the liquidator’s remuneration has already been approved by creditors. But, secondly, after receiving legal advice, the liquidator and receivers realised that part of the work that had been put to the creditors for approval as liquidator’s remuneration was more properly characterised as work done in the administration of the trust or as receivers. Such work should be charged against the assets of the trust rather than those of the company. Consequently, Mr Hillig has now apportioned the work done between that done in respect of the liquidation and that done in respect of the assets of the trust, both before the appointment of receivers and since appointment. It is apparent from the annexures to Mr Hillig’s affidavit of 5 July 2019 that considerable work has been done to endeavour to achieve this apportionment.

Re-allocating remuneration

1. [23]

   Where a liquidator is appointed to a company that carries on business as a trustee or holds trust assets, the liquidator is entitled to charge the remuneration for that work to the trust assets, provided that the court is satisfied that the liquidator has acted responsibly in managing those assets. As Finkelstein J explained in 13 Coromandel Place Pty Limited v CL Custodians Pty Limited (in liq) (1999) 30 ACSR 377 at 385; [1999] FCA 144 at [34]:

2. [24]

   In In the matter of Maureen Michael Management Pty Ltd (2005) 55 ACSR 539; [2005] NSWSC 1044, Young CJ in Eq accepted the “general proposition that, where a liquidator finds himself in charge of a trust fund and administers it, the court will normally exercise its discretion to allow the liquidator remuneration and expenses out of the fund”: at [28]. In so concluding, his Honour relied upon the decision of Campbell J in Application of Sutherland (2004) 50 ACSR 297; [2004] NSWSC 798, a decision which notes that this approach is consistent both with English authority and general principles relating to the remuneration of trustees.

3. [25]

   In light of these authorities, the tasks undertaken by the liquidator which can properly be characterised as tasks associated with administering a trust fund may be charged against the assets of the trust. It will be recalled that the company holds one asset beneficially, being a property in Liverpool Street, Sydney, whilst it appears to have held the Vineyard and Mascot properties on trust. The trust estate is considerably larger than the net assets of the company.

4. [26]

   It seems to me that where the company, and thus its liquidator, was doing work in respect of the trust and trust assets, the trust should bear that cost. The creditors of the company and its shareholders should not bear the cost of such work as this may result in creditors of the company being paid less than they might otherwise receive in payment of their debts, or the shareholders of the company receiving less than they might otherwise on the distribution of any surplus in the winding up.

5. [27]

   Accordingly, it seems appropriate to approve the receivers’ remuneration, noting Mr Hillig’s undertaking that he will not draw payment from the company for the remuneration already approved by the creditors to the extent that it is also covered by the order which I propose to make.

Receiver’s remuneration

1. [28]

   The receivers were appointed by the Court and rule 26.4 of the Uniform Civil Procedure Rules 2005 (NSW) provides:

2. [29]

   Section 425(8) of the Corporations Act (2001) (Cth) sets out factors to which the Court must have regard in determining whether remuneration to be paid to a receiver appointed under a power contained in an instrument is reasonable. Such factors may be considered by analogy in an application such as this: In the matter of Gondon Five Pty Ltd and Cui Family Asset Management Pty Ltd [2019] NSWSC 469 at [34(4)] per Brereton J. Some of the statutory factors which may be pertinent here are: whether the work performed by the receiver was reasonably necessary, the period of time over which the work was performed, the quality and complexity of the work, and the value and nature of any property dealt with.

3. [30]

   In Gondon Five, Brereton J summarised the relevant principles in respect of determining the remuneration of receivers at [34] to [35]:

4. [31]

   The courts undertake a similar task when approving a liquidator’s remuneration: In the matter of Primespace Property Investment Limited (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) 118 ACSR 333; [2017] NSWCA 38.

5. [32]

   In reviewing the receivers’ claim for remuneration, I have adopted the approach of Black J (on remitter from the Court of Appeal) in In the matter of Sakr Nominees Pty Limited [2017] NSWSC 668 at [29]:

Remuneration sought

1. [33]

   Mr Hillig has given a detailed explanation of the work that was done. The receivers were required to identify and secure the assets of the J & Lee Group Trust, obtain the approval of the Court to sell the assets, realise the assets for the benefit of trust creditors and, potentially, those entitled to share in any residue after payment of creditors, discharge or at least provide for payment of liabilities arising from any sale such as GST or capital gains tax, identify those entitled to share in the proceeds of those realisations and then distribute the proceeds amongst those persons. This latter step is still to be undertaken. It was submitted, and I agree, that the work was reasonably necessary given the purpose for which they were appointed as receivers.

2. [34]

   The receivers claim remuneration calculated on the basis of time spent by them and members of their staff on tasks arising out of their appointment as receivers. Detailed records have been provided setting out the time taken to do particular tasks, the people who undertook each task and their hourly rate. Mr Hillig, an experienced practitioner, has reviewed the time records and is satisfied that the time spent by members of his staff was reasonable given the nature of the task performed and the seniority and experience of the person involved. An examination of the time records does not suggest any reason for doubting his evidence.

3. [35]

   The bulk of the work was carried out by a senior manager, whose hourly rate was about 20% lower than that of the receivers themselves. The senior manager was primarily involved in the conduct of the sales. It was submitted that it was appropriate that this task was delegated to a senior manager whose work did not require continual supervision by the receivers themselves. More mundane tasks were allocated to more junior staff. Mr Hillig and Mr Smith, according to the detailed records of their firm, were mainly involved with more strategic matters, such as marketing programs for the properties, or legal matters requiring discussions with solicitors. It appears that there has been an appropriate allocation of tasks as between senior and more junior staff.

4. [36]

   Mr Hillig has given evidence that the hourly rates are consistent with rates charged by comparable firms operating in the Sydney market. The rates appear to be reasonable. I note that the company’s creditors approved the liquidator’s remuneration calculated by reference to those same rates.

5. [37]

   Assessed as a proportion of the amounts recovered from the properties, the remuneration claim obviously comes well within reasonable limits. Having regard to the approach of the Court of Appeal in Sakr Nominees, and given the large sale proceeds in this case, I consider that a commission-based approach is less suitable for determining proportionate remuneration. Overall, it seems to me that the amount claimed by reference to time costing represents reasonable remuneration for the work that was done.

6. [38]

   For these reasons, I make the following orders:

   1. (1)

      Note the undertaking of Peter Hillig not to take payment from the second plaintiff for remuneration approved by the creditors of the second plaintiff to the extent that the remuneration is in respect of work for which remuneration is approved in Order 2.

   2. (2)

      Approve payment of the receivers’ remuneration in the sum of $199,885.68 (inclusive of GST) for the period 16 August 2017 to 30 June 2019.