What to do with $11.8 million in unpresented cheques?

Articles, Procedure + Litigation

The case of Westnet WA Infrastructure Holdings Limited [2015] NSWSC 658 (Westnet) deals with an unusual situation where a the liquidator in a members’ voluntary winding up applied for directions under s511 of the Corporations Act 2001 (Cth) (the Act).

The liquidator had been appointed over 10 companies which had previously issued cheques in 2007 to shareholders entitled to receive payments under court approved schemes of arrangement.  A total of $11.8 million in cheques remained unpresented at the time of the present application.

The court was asked to decide on two issues:

  1. How the liquidator should deal with the $10.9 million of cash entitlements that remain unclaimed by the unsecured creditors; and
  2. Whether the court should approve additional remuneration sought by the liquidator due to the unexpected complexity of the administration.

First issue – what to do with a spare $10 million?

Young AJA acknowledged that there were four positions the liquidator was able to take on the matter:

  1. The liquidator could pay the money to ASIC under s544 of the Act; or
  2. The liquidator could pay the money to ASIC under a trust arrangement under s414(15) of the Act ;
  3. The money could be dealt with under the provisions of the Unclaimed Moneys Act 1995 (NSW) or the WA equivalent; or
  4. The liquidator could be required to pay the moneys to a state fund.

His Honour noted that when dealing with an application under s511 of the Act the court:

  1. does not, at least in the ordinary sense, decide the matter; but rather
  2. the court requires the liquidator to seek competent advice from counsel in the matter; and
  3. The court considers the advice and unless the court can see further material is required or that counsel’s advice has a problem, the court then advises or directs the liquidator that they would be justified in acting on counsel’s advice.

In this case the court agreed with advice from counsel that the appropriate course of action was for the liquidator to pay the funds to ASIC under s544(1) of the Act.

His Honour felt it prudent, due to the large amount of unclaimed money, that an advertisement should be placed in all major newspapers for a period of 1 month prior to the money being paid to ASIC putting claimants on notice that following the payment of funds to ASIC any claim should be directed to ASIC. The cost of the advertisements was to be paid from accrued interest earned on the unclaimed funds.

Second Issue – approval of liquidators remuneration

The liquidator sought approval from the Court for additional remuneration of over $800,000 in completing the winding up of the 10 companies.

The liquidator acknowledged that only 4 out of the 10 related companies had sufficient funds to meet the additional costs and sought an order that the other companies that could afford the costs bear those costs.

In considering this issue, his Honour identified four problems:

  1. Whether the court had power in a members voluntary winding up to increase the liquidators remuneration.
  2. What significance was there in the fact that the remuneration was approved when the liquidator was appointed, presumably with his consent.
  3. Whether the amount sought by the liquidator was reasonable.
  4. Whether the court should approve of one company being directed to pay the whole of the remuneration of the external administration of other companies.

In relation to the first point, his Honour noted Justice Barrett’s decision in Re: Walker [2005] NSWSC 557 reiterating that the court has a broad power under s511 of the Act to determine any question arising in the winding up of a company, including an increase in the liquidator’s remuneration.

The second point was dealt with under s504 of the Act which gives the court power, on application inter alia of a liquidator to review the liquidator’s remuneration (despite the remuneration having been fixed previously). That section lists factors to which the court must have regard in reviewing the liquidator’s remuneration.  Young AJA noted that the statutory power in that section permitted the court to vary the remuneration of the liquidator even though it had already been fixed under contract.

In considering the third point, his Honour acknowledged that he did not have a “feel for the market in approving liquidator’s remunerations” and to avoid the cost of an expert report being prepared he determined to ask the Registrar of the Supreme Court to provide him a report as to the reasonableness of the remuneration claim in determining whether it was “within the ballpark” of what is reasonable. Subject to the Registrar’s report his Honour certified that the remuneration sought was reasonable.

In addressing the final, his Honour considered that work to be done in the liquidation of one of the companies would be beneficial for the other companies and that it would be “just and beneficial” to order that the costs of the liquidation be paid out from one of the companies being wound-up, particularly given no one had objected to the uplift in remuneration and that company had sufficient funds to meet the remuneration of the liquidator.

For more information concerning remuneration applications please contact ERA Legal.

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