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Recent development in the determination of liquidators’ remuneration

Risks of legal costs in insolvent proceedings

Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr [2017] NSWCA 38

The Full Court of the NSW Court of Appeal recently allowed an appeal brought by the liquidator of Sakr Nominees Pty Ltd (in Liquidation) (Company) for the determination of his remuneration under section 473(3)(b)(ii) of the Corporations Act 2001 (Cth) (Act) and encouragingly deferred from a strict ad valorem approach in favour of one which considers the other factors such as the complexity and the quality of the work performed.

Background

The Company’s only significant assets were three properties in North Sylvania which the liquidator sold for approximately $3.72 million. After distributing the funds amongst the Company’s creditors there was a surplus of $517,830.00.

The creditors of the Company had approved the liquidator’s remuneration up until 3 November 2014, but were unable to further approve the liquidator’s remuneration as they had all been paid.

The liquidator accordingly sought orders from the Court that his remuneration for the period from 3 November 2014 until the finalisation of the liquidation in the amount of $63,577.80 including GST be approved by the Court.

The primary judge approved additional remuneration of $20,000.00 by reference to:

  1. The realised value of the Company’s assets;
  2. The risk assumed by the liquidator; and
  3. Proportionality in terms of the work done and the value realised.

Law

The Court has the power to determine and/or review a liquidator’s remuneration under subsections 473(3)(b)(ii) and 473(5) of the Act respectively.

A Court is to fix reasonable remuneration and in doing so must consider those factors listed in subsection 473(10) of the Act. Those factors are as follows:

  1. The extent to which the work performed by the liquidator was reasonably necessary;
  1. The extent to which the work likely to be performed by the liquidator is likely to be necessary;
  1. The period during which the work was, or is likely to be, performed by the liquidator;
  1. The quality of the work performed, or likely to be performed, by the liquidator;
  1. The complexity (or otherwise) of the work performed or likely to be performed;
  1. The extent (if any) the liquidator was required to deal with complex issues;
  1. The extent (if any) the liquidator is required to accept higher responsibility than usually is the case;
  1. The value and nature of any property dealt with, or likely to be dealt with by a liquidator;
  1. Whether the liquidator was required to deal with one or more receivers and/or managers;
  1. The number, attributes and behaviour of the company’s creditors;
  1. If the remuneration is ascertained in whole, or in part on a time basis, the time properly taken and whether the total remuneration is capped; and
  1. Any other relevant matters.

 

Determination

The determination of the primary judge was unanimously held to be erroneous by the NSW Court of Appeal on the following bases:

  1. The primary judge did not refer to the additional value of the work performed after 3 November 2014;
  1. Although proportionality in terms of the work completed and the value realised was relevant, focusing only on this aspect fails to consider the work actually done and whether the amount charged was proportionate to the difficulty and complexity of the tasks undertaken;
  1. No particular rate was used in arriving at a figure of $20,000.00; and
  1. Determined that smaller liquidations justify a different approach to fixing liquidator’s remuneration.

 

Summary

Although all of the factors listed in subsection 473(10) of the Act will not always be relevant, when fixing remuneration the Court is required to consider all of the relevant factors subject to the overriding requirement of fixing reasonable remuneration.

Ad valorem rates are a useful means of assessing the reasonableness of a liquidator’s remuneration, but by no means is it an exhaustive criterion when the actual value of the work fails to be considered.

If you require guidance or advice regarding such issues please call our Insolvency Team on 6215 9100 or email stipe.vuleta@chamberlains.com.au.

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