In the matter of Say Enterprises Pty Ltd [2018] NSWSC 396

Introduction

The judgment handed down by his Honour Justice Brereton in In the matter of Say Enterprises Pty Ltd [2018] NSWSC 396 sheds some further light on the right to remuneration for interim receivers and managers who may be appointed to a particular asset of a company. Further, the case explores the principles surrounding what work is “reasonably undertaken” by interim receivers and managers.

Facts

The Plaintiff, Yosi Tangy, held one-third of the shares in Say Enterprises Pty Ltd (Company) which operated a retail cosmetic business called “Forever Flawless Australia”. In July 2017, Mr Tangy commenced proceedings against (among others) the other two shareholders of the Company, Stav Marie Berrebi and Alon Simon for (among other things) various breaches of their directors’ duties.

On 10 August 2017, in light of a breach of certain freezing orders made by the Court some weeks earlier, Antony Resnick and David Solomons (Receivers) were appointed as interim receivers and managers of the Company until 15 August 2017. Several subsequent orders were made by consent that extended the Receivers’ appointment until 25 September 2017. The aim of their appointment was to preserve the status quo of the Company’s business and secure the Company’s bank accounts.

During their appointment as receivers and managers of the Company, the Receivers undertook the following tasks:

1. Secured the Company’s bank accounts;
2. Traded the business of the Company from its shop premises;
3. Undertook extensive efforts to obtain information about the Company from the other parties;
4. Reviewed the Company’s financial statements;
5. Obtained appropriate insurances and workers’ compensation premiums;
6. Conducted extensive negotiations with the other parties including attempting to resolve the substantive dispute between the parties;
7. Investigated the status of the Company’s ’employees’;
8. Considered a possible sale of the Company’s business; and
9. Filed accounts with ASIC.

The Receivers also incurred legal costs by retaining their own lawyers to advise them in relation to certain aspects of the administration.

In early September 2017, the substantive dispute between the Plaintiff and the Company’s directors had been resolved. The proceedings were discontinued and the Receivers were discharged on 20 September 2017. The Court ordered that the Receivers were entitled to retain $150,000.00 pending Court orders regarding their remuneration.

Court proceedings

On 3 October 2017, the Receivers filed an amended interlocutory process which sought orders that:

1. The Court approve and fix their remuneration in the sum of $85,675.26 plus GST;
2. They not be required to pass final accounts; and
3. They be released from any potential claims arising from the exercise of their duties in respect of the Company.

The other parties to the proceedings opposed the Receivers’ application in respect of their remuneration and a release.

The Receivers submitted that the work performed by them was properly performed in the due course of the receivership, was reasonable and that the amount of money claimed was fair and reasonable in light of the work performed.

His Honour Justice Brereton noted the following in relation to the work undertaken by the Receivers:

1. Even though the Receivers were given all of the powers allowed by section 420 of the Corporations Act 2001 (Cth), that did not mean that it was necessarily reasonable to invoke all of those powers.
2. The only responsibility of the Receivers was to preserve the business of the Company and maintain the status quo.
3. A receiver is not to (among other things) conduct unnecessary investigations, “intermeddle” in any litigation between the parties or retain its own solicitors without the Court’s approval.
4. The primary objective of the Receivers (that is, to secure the Company’s bank accounts) had been substantially achieved by 11 August 2017. Notwithstanding, the claim for remuneration made by the Receivers equated to approximately $3,000.00 per day for the 6 week period of their appointment.
5. The Receivers were only justified in undertaking work that was necessary “to enable them to carry on the business for the period fixed for the time being“.

Accordingly, his Honour held that it was not reasonable for the Receivers to undertake the following tasks (as such tasks were not within the scope of the Receivers’ appointment):

1. Investigations into the status of the Company’s ’employees’;
2. Undertaking extensive efforts to obtain information about the Company from the other parties;
3. Conducting extensive negotiations with the other parties including attempting to resolve the substantive dispute between the parties;
4. Retaining their own solicitors for the purpose of advising on certain parts of the administration in circumstances where the Plaintiff’s solicitors could have assisted; and
5. Considering the potential sale of the Company’s business.

Further, his Honour noted that there was a significant amount of duplication and redundancy in some of the work undertaken by the Receivers (including over involvement in meetings and administrative tasks being completed by senior employees).

In light of the above, his Honour held that at least $30,000.00 of the remuneration claimed by the Receivers should not have been incurred. Further, the Receivers were not entitled to reimbursement for the legal costs incurred by them (except for the legal costs incurred as a result of their application for remuneration).

Accordingly, his Honour ordered that the remuneration of the Receivers be fixed at $55,000.00 plus GST.

His Honour also held that there would be no utility in passing further final accounts and that the Receivers were entitled to a release from all liability for acts done in their course of their duties, after the expiry of a three month period for potential claims to be made.

Conclusion

This case demonstrates the importance of interim receivers and managers only undertaking work that is reasonable and has a direct connection to the purpose of their appointment. It further demonstrates that Courts will only allow costs that arise as a result of work that is reasonably undertaken by receivers and managers and will disallow any costs and disbursements that are viewed as unnecessary.

This article was written by Isabella Fyfe, Solicitor, in our Sydney office.

Publication Editor: Grant Whatley.