Introduction

The Full Court of the Federal Court has given some important guidance on the calculation of remuneration for court appointed receivers.  In its decision in Templeton v Australian Securities and Investment Commission the Court has highlighted the importance of proportionality in determining reasonable remuneration.

General Position

There are currently no general rules governing the amount of remuneration for court appointed receivers although it is generally accepted that, in compensating receivers, the court should award a reasonable sum for the time and trouble exhausted in the execution of their duties and with regard to the responsibility they have assumed.  As is often the case, this will be judged on a case by case basis.

In all cases the burden falls on the receiver to justify that the remuneration is reasonable having regard to the responsibilities undertaken.  Proportionality is a well-recognised factor in determining reasonableness, and this is what was under consideration by the court in Templeton.

Background

On 17 June 2013, the Court appointed Receivers, Damian Templeton and Phil Hennessey of KPMG, filed an Interlocutory application seeking approval of their remuneration, costs and expenses for the period 1 January 2012 to 31 March 2013. The claim fell into several categories but the total amount claimed was $4,309,813.79.

On 17 March 2014, a Registrar fixed the Receivers’ remuneration, costs and expenses at $3,764,738.39. In doing so, the Registrar applied various reductions (in some instances as high as 20% of the amount claimed).

On 28 March 2014, the Receivers filed an application for review of the Registrar’s determination. The Receivers were unsuccessful in their application before the primary judge and appealed the decision to the Full Court of the Federal Court.

The Decision in Templeton

The Receivers’ appeal relied upon numerous grounds, many of which were dismissed.  However, the Full Court did accept the Receivers’ key argument as to the primary judge's error in the application of the concept of proportionality.

The Full Court noted that an important consideration in determining the overall reasonableness of costs was the question of proportionality.  One basis for determining this question, it said, was to consider the size of the property or activity which is the subject of the receivership, or the benefit or gain to be obtained from the work.

In referring more generally to the question of proportionality, the Full Court opined that the precise benefit of some work may not be immediately clear. For example a situation in which work is being performed to preserve property of known value is quite different to the situation where work is being performed to achieve a return to creditors that was unclear. 

The Full Court recognised that the use of a hindsight analysis might be inappropriate to assess whether the work performed was proportional to the task. In these circumstances the Full Court preferred an examination of the expected realistic return at the time the work was performed rather than of the actual outcomes.

Specifically in relation to the case, the Full Court noted that some work may be sufficiently complex and labour intensive such as to justify a cost/benefit ratio of 6/10.  That is, proportionality may still be satisfied even if the receivers, in discharging their duty to maximise returns, spend $0.60 to achieve $1.00.

In all the circumstances of the case, the Full Court decided that the primary judge had erred in the application of proportionality.  The Full Court allowed the appeal, set aside the previous orders, and remitted the hearing of the application for review of the receivers’ remuneration to another judge.

Conclusion

The decision by the Full Court in Templeton gives further guidance to court appointed receivers. It provides some level of assurance that courts will have regard to the value of what the receivers actually achieve when assessing whether remuneration is reasonable.  

Further it is also worthwhile noting that s 425(8) of the Corporations Act (dealing with the remuneration of a receiver appointed under an instrument), s 449E(4) (dealing with the remuneration of an administrator), s 473(10) (dealing with the remuneration of a court-appointed liquidator) and s 504(2) (dealing with the remuneration of a liquidator under a voluntary winding up) all have reasonableness as the paramount principle in fixing remuneration.