Fixing insolvency practitioners’ remuneration: a uniform national approach

As noted in a previous post about the Sakr case[1], the worth of the work done by a liquidator can be calculated in various ways, including by:

• time-based costing (eg the liquidator’s firm’s usual hourly rates for the time spent doing the work); or
• commission calculated by reference to a percentage of the assets under the practitioner’s control or by reference to the results attained (eg an appropriate percentage of the assets realised and/or distributed in the administration) – sometimes described as ad valorem remuneration.

Sakr was the last of a line of controversial decisions by Brereton J in which his Honour fixed liquidators’ remuneration claims on an ad valorem basis, rather than by reference to time-based costing. In these decisions, Brereton J focused attention solely or predominantly on considerations of proportionality. This reflected an apparent divergence from the approach adopted by other judges, both in New South Wales and other jurisdictions.

In a decision[2] that will be welcomed by liquidators, the New South Wales Court of Appeal has rejected Brereton J’s approach to the determination of liquidators’ remuneration claims. In doing so, the Court has brought about a uniformity of approach across Australian jurisdictions.

The key points that emerge from the decision are these:

1. As a general proposition, it is impossible to say that any given basis for determining a liquidator’s remuneration should be given prominence over another – whether it be time, value, extent of recoveries, the size or nature of the company or any other basis.
2. The relevant statutory provisions (eg s 473(10) of the Corporations Act 2001 (Cth) (which, since 1 March 2017, is now substantially reproduced in s 60-12 of the Corporations Schedule) require the court, in exercising its power to fix remuneration, to take into account any or all of the factors mentioned in the statute, in ultimately deciding what remuneration is reasonable. If, after the judge has evaluated the evidence of the work done and taken account of the factors mentioned in the statute, he or she were to conclude that remuneration calculated on a particular basis was reasonable, he or she would be entitled to fix remuneration on that basis – whether that basis be time-based remuneration, ad valorem remuneration or some other basis.
3. Contrary to the approach adopted by Brereton J, it is not appropriate to fix remuneration on an ad valorem basis by simply applying a particular percentage considered appropriate to all liquidations or to a particular class of liquidations, without regard to the work that was done in the liquidation in question.
4. Proportionality – in terms of the work done relative to the size of the administration or the benefit to be obtained from the work – is a relevant and important consideration in determining reasonableness. However, proportionality cannot be the sole focus. Consideration must still be given to the work that was actually done and the complexity of the tasks performed. Brereton J erred in failing to consider the evidence presented by the liquidator and the factors mentioned in the relevant statutory provision that were relevant to the assessment of remuneration.
5. The mere fact that the work performed does not augment the funds available for distribution does not mean that the liquidator is not entitled to be remunerated for that work. For instance, there will always be work that must be done to meet statutory obligations.
6. There will be cases where work is done in an unsuccessful attempt to recover assets. There is no reason why a liquidator should not be remunerated for that work, provided that it was reasonable for the work to be done and the amount charged for the work is reasonable.
7. The statute does not mandate a different approach for determining remuneration in smaller liquidations. However, the value and nature of any property dealt with or likely to be dealt with is a relevant factor, as is recognised by the relevant statutory provision.

Finally, it is important not to read too much into the Court of Appeal’s rejection of Brereton J’s approach. The decision represents neither a resounding rejection of ad valorem remuneration nor a resounding endorsement of time-based remuneration.

[1] Re Sakr Nominees Pty Ltd [2016] NSWSC 709.

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