Appointment of interstate receivers may raise the question of unnecessary fees

Oswal, in the matter of Burrup Fertilisers Pty Ltd (Receivers and Managers Appointed) v Carson, McEvoy and Theobald (Receivers and Managers) (No 3) [2013] FCA 357

An  application for an inquiry into the conduct of receivers and managers of the assets and undertaking of a corporation based in Western Australia  pursuant to section  423 of the Corporations Act 2001 (Cth). The decision highlights the importance of exercising commercial judgment when considering appointments.

The Applicant Oswal, made an application pursuant to section 423 of the Corporations Act 2001 (Cth)(“Act”) seeking an inquiry into the propriety of the conduct of the receivers and managers (“Receivers”) of Burrup Fertilisers Pty Ltd (Receivers and Managers Appointed) (“BFPL”).

The Applicant made allegations regarding:

(a)      the competence of the Receivers;

(b)      the actual process of the receivership and deficiencies in selling the assets of BFPL;

(c)      the utilisation of Melbourne based personnel on a West Australian case; and

(d)     the fees and expenses incurred during the final six weeks of the receivership.

The Applicant claimed that the Court should order that there be an inquiry as to whether the Receivers had failed to carry out their duties or observe the requirements of the Act in the following respects:

(a)     Retaining in BFPL large amounts of cash and not using such cash to liquidate BFPL’s indebtedness to the secured creditor.

(b)     Using documents of BFPL for the purpose of marketing the sale of shares held by Mr Oswal in BFPL over which the Receivers had been appointed receivers and managers.

(c)     Disclosing to third parties documents in respect of which BFPL owed contractual and equitable duties of confidentiality.

(d)     Causing BFPL to enter into a new gas supply agreement (“GSA”) on substantially less favourable terms than the previous GSA.

(e)     Arranging for the Receivers to continue, after their proposed resignation as receivers and managers of BFPL, to have the right to commence or to continue proceedings in the name of BFPL not for the purpose of enforcing the security, but for the purpose of facilitating the sale of shares which Mr Oswal held in BFPL.

(f)      Procuring for themselves, as part of the share sale agreements, a covenant from each of the purchasers that each would use all reasonable endeavours to procure that neither BFPL nor BHL make any claim against the Receivers in relation to their conduct as receivers and managers of BFPL.

(g)     Charging fees which were excessive and incurring disbursements which were unnecessary or excessive.[2]

His Honour Justice Siopis, did not consider that items (a)[3](b)[4],(c)[5] (d)[6] (e) or (f)[7]referred to above were appropriate to order an inquiry under s 423 of the Act . His Honour’s reasoning included “that ordering of an inquiry will result in duplication, a waste of resources and will bring with it the risk of inconsistent findings being made in different forums” and “that the Court does not have jurisdiction to order an inquiry into this complaint”.

However, His Honour did find that the fees of the Receivers, as per item (g) above, did warrant enquiry under section 423 of the Act due to the conduct of a receivership in Western Australia by staff located in Melbourne. At [201] His Honour stated “I will order an inquiry into:

(a)     the propriety of the defendants’ conduct in accepting the appointment to act as receivers and managers of BFPL; and

(b)     the extent to which the defendants, in respect of the whole period of the receivership, charged:

  1. fees for the professional time that Melbourne based partners and staff spent in travelling;
  2. the expenses and disbursements incurred by Melbourne based partners and staff in respect of travel, accommodation and related activities; and

(c)     the extent to which the fact that the persons who worked on the receivership were based in Melbourne, increased the fees, expenses and disbursements which were charged by the defendants in respect of the receivership of BFPL”.

[2] Paragraph 51, Oswal, in the matter of Burrup Fertilisers Pty Ltd (Receivers and Managers Appointed) v Carson, McEvoy and Theobald (Receivers and Managers) (No 3) [2013] FCA 357[3] at paragraph 100

[4] at paragraph 146

[5] at paragraph 118

[6] at paragraph 140

[7] at paragraph 151

Andrea Mapp – CommBar profile

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