Liquidators’ sweet deal keeps fee police placated

Sometimes it takes special circumstances, sometimes it's about assets eclipsing liabilities and sometimes it's both.
John Melluish's fees passed the proportionality test.

John Melluish’s fees passed the proportionality test.

It was one of those rare instances when the application of a proportionality percentage aligned with the fees that liquidators had calculated using their own hourly rates. But as often happens with opportune outcomes, special circumstances held sway.

First and foremost was the nature of this liquidation. There were two entities, neither insolvent. One had no directors. The other had directors who were siblings and “deadlocked”. There were also two properties – one in the western Sydney suburb of Telopea and the other in inner city Haymarket. Valued in the millions they were effectively unencumbered.

In 2006 a court found that the properties and the 1000 shares in GPJ Investments Pty Limited (GPJ) were held on trust for the directors and beneficiaries of Angelides Investments Pty Limited (AI). The court also found that the properties and shares should be transferred to the siblings who were equal shareholders in AI. Those orders were still awaiting compliance when John Melluish and Morgan Kelly of Ferrier Hodgson were appointed liquidators to the companies on December 18, 2014.

The failure of those original orders to be satisfied would seem to be a matter best explained by Grahame Francis Funnell. He held the Haymarket property in his own name and 999 of the 1000 shares in GPJ, which was the registered title holder of the Telopea property. The gentleman however passed away in 2009 and it was the widow Funnell – as executrix of his estate – who stood for the final act.

In a fair demonstration of the insolvency profession’s effectiveness, the eight year stalemate was brought to a relatively swift resolution once the prime mover amongst the siblings obtained orders from Justice Ashley Black requiring the executrix to put into effect the orders from 2006.

By mid-2015 the liquidators had sold Telopea for $950,000, and Haymarket for $3,400,000. As well as the usual tasks they also went up against the commissioner of state revenue over duty charged on the transfer of the Haymarket property, engineering a $191,190.00 “act of grace” refund.

Eventually Melluish and Kelly were left with a $3,635,755.30 surplus to distribute to the siblings and the executor of the estate of the siblings’ father. That required special leave from the court and maybe they figured that asking for permission to distribute a monster surplus might also be a good time to get their remuneration of $127,325.70c past Justice Paul “Proportionality” Brereton, who imposes order upon fees like a modern day Capability Brown, except we’re talking the wilderness of liquidators’ pay claims rather than the estates of England’s Georgian-era aristocracy. You can read the judgment in full at: In the matter of GPJ Investments Pty Limited and in the matter of Angelides Investments Pty Limited [2016] NSWSC 1173

“In the case of GPJ, the amount claimed represents about 5% of net realisations,” Justice Brereton said. “In the case of AI, it represents slightly in excess of 2% of net realisations.” These amounts were the judge said, well within the range described in the cases he’d referred to in making judgment, only about half of which were his own.

“In those circumstances, I am satisfied that the remuneration claimed is reasonable, and should be approved,” the judge concluded.

When asked Melluish, who resigned form Ferrier Hodgson late last year to join CFO Strategic, was happy to identify the special circumstances that made this fortuitous alignment possible. “When you’re selling real estate and it’s worth $4 million it’s very easy to fall within the percentages he requires,” he said.

About the Author

Peter Gosnell
Insolvency News Online illuminates the practice of insolvency Australia-wide, highlighting the triumphs and travails of the nation’s registered practitioners and the accounting and legal professionals who work with them. INO is produced by Peter Gosnell, former business editor and senior business reporter at The Daily Telegraph newspaper. During a decade-long career, your correspondent reported on such notable corporate collapses as HIH, One.Tel, Westpoint and Fincorp as well as some of the nation's highest profile bankruptcies and the investigations and prosecutions arising from Australia's most notorious instances of white-collar crime.

2 Comments on "Liquidators’ sweet deal keeps fee police placated"

  1. The adoption of a percentage factor in asset realisations ignores the amount of work that might have been required and care needs to be taken not to apply it to all instances .

    There is no “one size fits all” formula and in Australia historically work has been carried out on a time cost basis. In all cases the seminal authorities – not necessarily those of Justice Brereton are that the charges are fair reasonable and proportionate.

    It will be interesting to see the result of the remuneration fight in Perth where judgment is reserved.

  2. The interesting thing about proportionality is that, from my reading, there appears to be no distinction between the ‘fixed costs of doing a job’ (eg an investigation, writing reports, complying with ASIC requests for fee disclosure, reconciling books and records so an actual asset amount can be recovered, experts reports etc) and the variable costs of a recovery process. As John Melluish correctly points out, when you are selling a property and it has a high value, it is very easy to achieve a ‘reasonable proportionality’ – in fact, even proportionality will be very generous when the value of the assets is very high.

    To explain the point above let’s look at a few practical examples:

    1. Debt collection

    If you hire a debt collector to collect book debts, they charge a % fee for COLLECTING THE DEBT – BUT they expect the books and records to be correct, accurate and complete. If they are not, good luck getting them to chase a debt! And of course, book debts with low or questionable value? Again, good luck getting them to charge a ‘standard fee’! There might even be a fixed non-negotiable fee if the risk is considered high and the amount is low (<$100K for eg).

    2. Asset Sales

    Asset valuers charge fixed fees for identifying and valuing assets and a percentage for the sale of the assets.

    3. Real Property agents/brokers

    Real property brokers/agents are less likely to separate their fees into fixed and variable costs for 2 reasons:

    a) Because, often the assets are being sold 'as is' and it is relatively easy to identify and put them into saleable form, and,

    b) They tend to make good money out of the sale given the assets often have a high value.

    However, there are times when work is required to be done by real property agents which might result in them charging additional fees – for eg, if a property is to be sold tenanted, they will charge a leasing fee.

    And so, this type of analysis should be the judiciary's starting point: dividing a job into 2 portions: the 'asset recovery' portion – which might be best suited to a % fee, and other areas such as 'asset identification', 'communication with creditors', 'work done to comply with ASIC', etc which are not.

    To apply a 'standard' percentage to all work is, to quote one esteemed NSW ex-Premier, 'a nonsense' (but then he was an MBA not a legal eagle).

    If the judiciary who are leading the charge on this issue showed their understanding of commercial processes by applying such logic, then I am sure there would be less concern as to their approach.

    But, (to end with a caveat!), I have not read the judicial judgements in full, and the esteemed members of the judiciary might well have undertaken such a rigorous approach before descending upon the unsuspecting insolvency practitioner with an adverse fee order! But if they haven't, we probably owe them an education on what happens in the commercial world.

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