In a much anticipated judgment, the Court of Appeal of the Supreme Court of NSW has delivered good news for insolvency practitioners concerning their remuneration. This news will be particularly welcome for those practitioners who accept appointments over small to medium sized companies.

In the matter of Sanderson as Liquidator of Sakr Nominees Pty Limited (In Liquidation) v Sakr [2017] NSWCA 38, the Court of Appeal has overturned the earlier decision of Justice Brereton in which His Honour restricted the liquidator’s remuneration to an amount that he believed was proportionate to the recovery made based upon the size of the company, the available assets, and the complexities involved.

In arriving at this conclusion, Justice Brereton considered that, in smaller liquidations, liquidators could not be expected to be rewarded for their time at hourly rates as would be justifiable if more property was available. This was because, in the case of smaller liquidations, liquidators took on less risk and achieved a lesser outcome in absolute terms compared to larger liquidations.

Justice Brereton expressed a preference for an ad valorem assessment of remuneration for reasons including that such an assessment incentivises the creation of value rather than the disproportionate expenditure of time.

In a win for practitioners a five member bench of the NSW Court of Appeal disagreed.

The Court of Appeal found that Justice Brereton had focused too heavily on the concept of proportionality in the context of the dollar outcome achieved. Whilst the concept of proportionality does exist amongst the shopping list of factors the Courts are required by s 473(10) of the Corporations Act 2001 (Cth) to take into account when considering whether the remuneration is reasonable, it ought not be adopted as the over-riding factor.

The Court of Appeal found that a court still needs to give consideration to the other factors listed in s473(10), such as the work actually done and the difficulty and complexity of the tasks performed. These tasks and the complexities of the administration can be, and often are, the same in both small and larger liquidations.

The Court of Appeal has remitted the proceedings back to the Equity Division of the Supreme Court where the question of the liquidator’s remuneration will be determined having regard to the Court of Appeal’s findings.