Court of Appeal sets the record straight
The key point
On March 9, 2017, a full bench of the New South Wales Court of Appeal handed down a significant decision affecting approach to judicial review and approval of liquidator remuneration. Significantly, existing tension between decisions of different judges at first instance, and between NSW and Federal courts, has been resolved.
The Court of Appeal has now made clear that the Corporations Act approach to review of liquidator remuneration has as its unifying theme the concept of proportionality. The work carried out by the insolvency professional must be proportionate to the difficulty and importance of the task. From that point, a judge may use a “time spent” or “proportion of assets recovered” approach, so long as the remuneration is reasonable and proportionate. Importantly, it would be an error to exclusively apply a “proportion of assets recovered” approach, and it would also be an error to take different approaches depending on the size of the insolvent estate.
Some more detail
In Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr, the applicant, Mr Sanderson, sought leave to appeal against an order of the Honourable Justice Brereton, determining his remuneration in an amount of $20,000 instead of the amount claimed, being $63,577.80.
In determining the remuneration at $20,000 his Honour stated that liquidators would not necessarily be allowed remuneration at their firm’s standard hourly rates, particularly in smaller liquidations. He stated that in smaller liquidations, questions of proportionality, value and risk loomed large and that liquidators could not be expect to be rewarded for their time at the same hourly rate as would be justifiable if more property was available. He further stated that ad valorem assessment of remuneration is inherently proportionate and incentivises the creation of value rather than the disproportionate expenditure of time.
The Court of Appeal held:
- That a judge was entitled to fix remuneration calculated on the basis of:
- a proportion of assets recovered or assets distributed; or
- time spent;
- as long as the remuneration was reasonable.
- It is not appropriate to fix remuneration on an ad valorem basis by simply applying a percentage without regard to the particular work required in the liquidation.
- The legislation has as its unifying theme the concept of proportionality. The work carried out by the insolvency professional must be proportionate to the difficulty and importance of the task.
- Evidence as to the percentage that remuneration constitutes of realisation will provide a measure of objective testing of the reasonableness of the remuneration claimed and will identify those cases in which there ought to be a real concern in that respect.
- The mere fact that the work performed does not lead to augmentation of the funds available for distribution does not mean the liquidator is not entitled to be remunerated for it. Provided it was reasonable to carry out the work and the amount charged for it was reasonable, there is no reason why a liquidator should not recover remuneration for undertaking the work.
- The statute does not mandate a separate approach for smaller liquidations.
The judgment brings certainty to the profession in respect of applications for remuneration. It is a unanimous full bench decision and gives a clear and concise summary as to the evidence that must be presented to the court to enable it to make a decision regarding an application for remuneration.