When you can’t get to the pool – section 90-15 to the rescue on remuneration

Re Redstar Transport Pty Ltd (in liq) [2020] VSC 547

The joy of a summertime splash in the pool seems like a distant memory, at least for those of us in lockdown here in Melbourne.

Similarly elusive can be the granting of a pooling order under section 579E of the Corporations Act 2001 (Cth) for a corporate group in liquidation.

The relevant companies may: (i) be related bodies corporate; (ii) be jointly liable for debts and claims; (iii) jointly own property used by the group, or (iv) individually own property used by other companies in the group. Any one of these will satisfy the threshold requirements for a pooling order under sub-section 579E(1)(b).

However, that pesky sub-section 579E(10)(a) prohibits the making of a pooling order if an unsecured creditor who would be materially disadvantaged by the granting of the order refuses their consent.

The “materially disadvantaged creditor” is one of the reasons there are so few pooling applications. In fact, you can pretty much count on fingers and toes the number of applications since the pooling provisions took effect in 2008.

So, what are the options for liquidators winding up closely related entities, particularly when it comes to the question of remuneration? Absent a pooling order, how can the liquidator recoup his or her remuneration incurred in winding up the assetless entities in the group, which work may be intimately entwined with winding up the entities holding all the assets?

The fundamental doctrine of each company being a separate and distinct legal entity in the eyes of the law would leave the liquidator without any remuneration from the assetless entity, notwithstanding that the work may have been essential to realising assets of other entities within the corporate group.

Enter section 90-15 of the Insolvency Practice Schedule (Corporations). Since its introduction by the enactment of the Insolvency Law Reform Act in 2016 it is proving to be the salve to many a liquidator’s consternations in this area. The section empowers the Court to “make such orders as it thinks fit in relation to the external administration of a company”, unfettered by any express limitation.

As we know, the Courts have found section 90-15 to be even more expansive a remedy than its predecessor, the now repealed section 511. Soon after commencement of the section, Black J in Octaviar called for a wide interpretation to give effect to the intention of section 90-15: namely to facilitate the performance of a liquidator’s functions.[1] Last month, Connock J reminded us of its wide operation in Re Pako Supermarkets Pty Ltd (in liq).[2]

And now the Supreme Court of Victoria has utilised the section to approve the payment of liquidators’ remuneration relating to an assetless company from the proceeds realised by another entity in the same corporate group – in circumstances where no pooling order was sought or granted.

In Re Redstar Transport Pty Ltd (in liq) & Ors [2020] VSC 547, Martin Ford and Stephen Longley of PwC were liquidators of seven logistics and transport services companies which together provided road express freight services across Australia. The group operated as an integrated business structure under which each entity was dependent on at least one other for its operational needs. The kind of group that sounds ripe for a pooling order. In fact, FEG agitated for a pooling application, however, thanks to the objection of a materially disadvantaged creditor, it would have been a futile enterprise thanks to sub-section 579E(10)(a) of the Corporations Act.

And so the liquidations proceeded as though the companies were pooled (although they weren’t), with the liquidators and their staff doing their level best to track and record work undertaken to a specific entity in the group. In the result, a decent chunk of remuneration was incurred in relation to a company with no funds of its own (Redstar Transport Services Pty Ltd). In addition, the liquidators had the vexed task of having to determine the treatment of a complex network of intercompany loans as between the entities in the group.

The application was granted in full by Irving JR pursuant to the powers under sections 90-15 and 65-45 (the provisions for the handling of money and securities) of the Insolvency Practice Schedule and pursuant to the Court’s inherent jurisdiction. Orders were ultimately made approving the liquidators’ adjudication of the inter-company loans and payment of their remuneration was granted – including remuneration in relation to the assetless entity to be paid from the funds ultimately held by another entity in the group.

Key takeaway points from the case include:

• the limits of section 90-15 are yet to be found, with it being deployed more often and more widely as time goes by;
• don’t forget the Court’s inherent jurisdiction in relation to liquidators’ remuneration – which may have supported the granting of the remuneration orders absent section 90-15;
• when liquidating multiple entities within a corporate group, liquidators should ensure their remuneration is clearly recorded against each separate entity from commencement of the liquidations; and
• when seeking approval for adjudication of complicated transactions, consider obtaining a second opinion: here, the liquidators’ decision to commission an independent opinion from Ernst & Young regarding the inter-company loan position was highly persuasive in favour of the orders sought.

[1] Re Octaviar Administration Pty Ltd (in Liq) [2017] NSWSC 1556 per Black J at [9].

[2] Re Pako Supermarkets Pty Ltd (in Liq) [2020] VSC 487 per Connock J at [39].