Update on Liquidator remuneration post-Sakr1

Key points summary

Following the recent high-profile appeal decision2, the Supreme Court of New South Wales has now finalised the saga that was the review and approval of the remuneration of the Liquidator of Sakr Nominees.

From that decision emerge several key points for insolvency professionals when considering their remuneration:

  • The decisions of the courts regarding the remuneration of liquidators are equally applicable to voluntary administrators and deed administrators because the relevant sections are mirror images of each other.3
  • The standard of evidence required to support a successful application for remuneration approval is high.
  • It may be more economical to seek approval from the Committee of Inspection or the creditors rather than the court.
  • There has been no change to the law regarding remuneration approval by the court as a consequence of the Insolvency Law Reform Act 2016 (Cth).

Outlined below is a short history of the Court process for Sakr Nominees, and a discussion of the key points that emerge from Justice Black’s decision on the Liquidator’s remuneration.

Summary of the Sakr Court process

  • Mr Sanderson appealed this decision. The Court of Appeal held that:
    • As long as the remuneration was reasonable, a judge was entitled to fix remuneration calculated on the basis of:
      • a proportion of assets recovered or assets distributed; or
      • time spent;
    • 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.
  • The Court of Appeal remitted the re-hearing of the application for remuneration back to the Equity Division of the Supreme Court of New South Wales.

To see our client alert on the Court of Appeal decision please click here.

The decision of Justice Black 

The decision of Justice Black4 provides a useful summary of the evidence required by the Court for a successful application by an insolvency practitioner for remuneration, which is consistent with his Honour's prior position.5 In his decision in Sakr, Black J held:

  • a liquidator is entitled to reasonable remuneration for their services;
  • the liquidator bears the onus of establishing that the amount of remuneration they seek is fair and reasonable;
  • in determining a liquidator's reasonable remuneration, the Court will have regard to the factors specified in s473(10) of the Corporations Act 2001 (Cth);
  • the Court must bring an independent mind to bear on the question whether the remuneration sought by a liquidator is fair and reasonable;
  • the liquidator must lead evidence in sufficient detail that the Court can determine the question;
  • proportionality is an important matter in considering the question of whether remuneration is reasonable;
  • the value of a liquidator's work can include:
    • the benefit of resolving the position of creditors and beneficiaries;
    • the benefit to the community of not permitting assets to remain unproductively in the hands of a defunct company for a long period; and
    • work that was required to be done, although it did not result in a return to creditors.

Evidence necessary to support an application for approval of liquidator's remuneration

Justice Black identified that a successful application will need to include the following evidence:

  • Identification of the staff members that have undertaken work in the matter and their qualifications and experience.
  • Confirmation that the staff members working on the liquidation had an appropriate mix of experience for the issues involved.
  • The history of the liquidation, identifying any out of the ordinary complexities that arose.
  • The time taken and the reasons for any delay.
  • The cooperation or otherwise of the directors and officers of the company.
  • The steps taken in the ordinary course of the liquidation including the steps taken to deal with proofs of debt.
  • Any investigations undertaken into the affairs of the company.
  • The availability of the books and records of the company.
  • The process adopted by the liquidator's firm for time recording and costs and the review of that time recording and the costs.
  • Confirmation that the rates charged by the liquidator and their staff are reasonable and equivalent to the market rate.
  • The total amount realised by the liquidator.
  • An explanation as to the manner in which the liquidator and their staff members allocate time to work within specified categories, including administration, assets, creditors, investigations, dividends - creditors, dividends - shareholders and litigation.
  • An analysis of the time spent by staff members and that the time incurred is consistent with the liquidator's expectation.

This evidence needs to be filed with the Court at the first instance in order to ensure that interested parties have all relevant information before them to determine whether they wish to contest the application.

It remains the case that the preferable avenue for the approval of a liquidator's remuneration will be by either a Committee or by creditors. Of course, this is not always feasible.

Concluding thoughts 

Practically speaking, the decision means that applications for Court approval of liquidator's remuneration will be more time consuming, however, if the appropriate evidence is lead at the first instance it will avoid the need for multiple court appearances and unnecessary costs being incurred.

We suggest that insolvency practitioners consider inserting another column in their Remuneration Report which records why the particular time recorder spent time on an issue and the value that it contributed to the administration/liquidation and, if applicable, to creditors.

The position in respect of remuneration approval is unaffected by the amendments contained in the Insolvency Law Reform Act 2016 (Cth).