In the case of Stimpson v Allied Rural Pty Ltd (subject to deed of company arrangement) & Ors  QSC 74, the Supreme Court of Queensland considered an application by an administrator for review of a remuneration determination made by resolution of the creditors.
The matter was unusual in that the administration of the company, Allied Rural Pty Ltd (Allied Rural), had resulted in a deed of company arrangement (DOCA) that was proposed by, approved by and operated for the benefit of certain creditors of Allied Rural.
However, those creditors then refused to approve the administrator’s fees for reasons including that the administrator had been invalidly appointed and should have immediately terminated the administration after being appointed. The administrator was therefore required to apply to the Court for approval of his fees.
Allied Rural was originally incorporated and run by siblings Josephine and William Doolan in 2009. Josephine held all of the shares in Allied Rural as trustee for the Doolan Trust and was the sole director, while William ran the company’s business.
Subsequently, in the period between 2012 and 2013, a person by the name of Hugh Blennerhasset effectively replaced Josephine as director of Allied Rural and as trustee of the Doolan Trust. Mr Blennerhasset also took ownership of the 210 shares in Allied Rural, of which 180 were held on trust for the Doolan Trust and 30 were held on trust for Mr Blennerhasset’s trust.
A dispute then arose in 2019 and 2020 regarding the running of Allied Rural. In the course of that dispute, William Doolan issued demands to Allied Rural for amounts totalling approximately $400,000. Further, Katrina Perey, an employee of the company and the partner of William Doolan, also issued a demand for approximately $19,000 said to be owing to her. Both Ms Perey and the accountants for William Doolan made allegations of insolvency during this period. In addition, through a variety of circumstances, Mr Blennerhasset was denied access to the company’s books and records for a period of approximately 2 months in January and February 2021.
Mr Blennerhasset placed the company into administration on 2 March 2021. This was stridently opposed by William Doolan on the basis that Allied Rural was solvent.
Following this appointment, a number of developments took place:
The administrator completed his report to creditors on 29 April 2021. The report concluded that Allied Rural was insolvent based on the revised position regarding Mr Doolan’s debts and recommended that the creditors approve Mr Doolan’s DOCA.
The second creditors’ meeting was held on 10 May 2021. Mr Doolan’s DOCA was approved, but the resolutions for approval of the administrator’s fees were not carried. Mr Doolan instead proposed a resolution that the administrator’s fees be fixed on an ad valorem basis at 20% of the value of creditors’ claims admitted for dividend purposes under the DOCA. This resolution was carried.
The administrator then applied to the Court for review of that resolution and determination.
The administrator’s application was opposed by Mr Doolan, Allied Rural and Mr Doolan’s partner Ms Perey on the grounds that the appointment was invalid, that the administrator should have immediately terminated the administration after being appointed, and that the administrator’s remuneration should be as per the determination made by the creditors (ie fixed at 20% of admitted claims under the DOCA).
After going through the facts of the matter, Justice Jackson considered that overall Mr Doolan had acted as a ‘disruptive humbug’.1
On the matter of the alleged invalid appointment, Justice Jackson concluded that he was not required to reach a decision on the matter because Mr Doolan was precluded from raising the invalidity of the appointment on the basis of the doctrine of approbate and reprobate. His Honour referred to previous case law on the doctrine:
Where a person obtains advantages by relying upon rights which can exist only upon the basis of an assumed state of facts, he is not permitted thereafter to rely upon other rights in relation to the same person which are inconsistent with the existence of the rights formerly asserted.2
In other words, you can’t have your cake and eat it too.
The circumstances relevant to precluding Mr Doolan from raising the alleged invalidity of the appointment included that Mr Doolan had changed his position and had requested the administrator adjourn the application to terminate the administration and continue the administration by putting Mr Doolan’s proposed DOCA to creditors at the second meeting.
As to reviewing the remuneration determination, the Court has the power to do so pursuant to section 60-11 of the Insolvency Practice Schedule (Corporations). In this respect, His Honour held it was appropriate to review the determination, having regard to the unusual circumstances of the case.3
In respect of the reasonableness of the remuneration sought by the Administrator, his Honour referred to the leading case of Sanderson as Liquidator of Sakr Nominees Pty Ltd v Sakri, and the requirement that the Court must have regard to whether the remuneration is reasonable, taking into account any or all of the following matters:4
His Honour ultimately rejected all of Mr Doolan’s arguments and the administrator was successful, with the Court ordering that the remuneration determination be varied to $228,891.
This case is a useful reminder to both creditors and insolvency practitioners of the Court’s power to review remuneration determinations, as well as the complex scenarios that can arise in external administrations.
If you have any questions about the Court’s power to review remuneration determinations, the experienced Lavan team is ready to help.