Two critical components affecting liquidators have come out of Tuesday’s decision by Brereton J in the NSW Supreme Court.

First, his Honour has found that the priority system in section 556 of the Corporations Act 2001 does not apply to the distribution of trust assets.  Instead his Honour is of the view that creditors are to receive payment on an equal footing, after payment of the costs of the administration (including liquidator’s costs and expenses).  This means that, where trust assets are concerned, employees and other priority creditors will not receive the priorities they have come to expect.  It will be interesting to see if the Fair Entitlements Guarantee scheme continues to make payments to employees in circumstances where it might not be entitled to a priority payment.

Next, his Honour has approved liquidators’ fees in the sum of only $30k, in circumstances where over $115k was recorded on a time costed basis (although not all was claimed).  His Honour’s view appears to be that time costing is not an appropriate method, instead preferring fees to be referrable to and in proportion with actual recoveries and distributions.  His Honour indicated he would allow 2% of the assets realised in the liquidation (being fees of $4,236) reflecting apparently limited work done in that respect.  Then his Honour permitted 15% recovery on what was distributed (being fees of $16,647).  The total would therefore have been just under $21k, however apparently his honour was “conscious that the Court ought not to discourage liquidators from undertaking small but difficult liquidations” and increased the sum to $30k in total.

The case makes an interesting read, in particular in connection with the approach and reasoning that his Honour has taken to the approval of the liquidator’s fees.

If liquidators’ fees are going to be habitually limited in such a dramatic fashion, it’s hard to imagine that consents will continue to be signed for the “small but difficult” liquidations.  Only time will tell.

Read the decision here: In the matter of Independent Contractor Services (Aust) Pty Limited ACN 119 186 971 (in liquidation) (No 2) [2016] NSWSC 106