On 25 July 2014 and 17 September 2014 respectively, Justice Brereton of the Supreme Court of NSW delivered two related judgments in Re AAA Financial Intelligence Ltd (in liquidation) andRe AAA Financial Intelligence Ltd (in liquidation) (No 2). The decisions deal with the evergreen topic of Liquidator remuneration and expenses.

Importantly, in fixing the Liquidators' remuneration, Justice Brereton adopted a "value" focussed approach, and discussed the relevance of considering matters beyond simply time spent multiplied by fixed hourly rates. 

The Judge also indicated a readiness to closely scrutinise the Liquidators' expenses (including legal expenses), and an expectation that considerable detail about expenses would be available to the Court when expenses are reviewed.

These judicial statements come at a time when similar issues are under close consideration in the United Kingdom, where alternative approaches to remuneration are under consideration. So, the two decisions are likely to be a sign of further changes to come in the near future.


The two decisions involved the Liquidators of AAA Financial Intelligence Ltd (in liquidation) (AAA Financial) seeking the guidance of the Court in applying company funds, particularly in relation to their remuneration and expenses.

AAA Financial was a financial services licensee which had provided financial products and services. It had Authorised Representative Agreements with Advisers and Stockbrokers and received funds upon trust for the Advisers (Adviser Funds) and Stockbrokers (Stockbroker Funds) engaged by it to provide services to clients (Trust Funds).

Reasonable Remuneration

Justice Brereton expressed concern that because of the relative proportion of the Liquidators' remuneration to returns to creditors, the primary beneficiaries of the liquidation were the Liquidators - an outcome that in the Judge's view was at odds with the fundamental goals of a liquidation.

In determining whether the costs of the Liquidators' services were reasonable in the circumstances, the Court focused on whether the formula of time reasonably spent at standard hourly rates provided a proper measure of reasonable remuneration.

Justice Brereton highlighted the Court's views on the shortcomings of time-base costing as the basis of remuneration, particularly in smaller liquidations. Notably, his Honour endorsed Justice Finkelstein's comments in Re Stockford Ltd (Subject to Deed of Company Arrangement) [2004] FCA 1682 of the need to strike a balance between conserving the fund under administration, and allowing the market to operate normally with insolvency practitioners charging their normal hourly rates. Statutory guidance under theCorporations Act 2001 (ss 504(2) and s 473(10)) was also considered.

The Court emphasised the need for various considerations to take place in determining reasonable remuneration, and expressed the view that reasonable remuneration could not be assessed solely by the application of the liquidator's quoted standard hourly rates to the time reasonably sent. Rather, it should be should be considered amongst a plethora of other factors, including the risk assumed, proportionality and as a commission over percentage basis.

Case Impacts

"Rate x Hours spent" might not always be good enough

This case provides a very comprehensive overview and critique of the basis upon which liquidators charge for the performance of their duties. In particular, it raises considerable doubts on the traditional methods used to calculate the "reasonable remuneration" of a liquidator. Insolvency practitioners within Australia should pay particularly close attention to Justice Brereton's scrutiny of a liquidator's standard hourly rates in determining the time reasonably spent. There are a range of other factors to be considered by liquidators in calculating their fees, such as the risk assumed, the value generated and questions of proportionality.

Moreover, legal professionals and other advisers assisting liquidators should be mindful of the need for appropriately detailed records to substantiate claims for their expenses.  A lack of detail of the work done or charge-out rates may jeopardise the full recovery of such expenses out of the estate.

Disbursements - open to scrutiny

Justice Brereton's judgments reinforce the concept that where a Liquidator incurs disbursements in performing his or her duties, those disbursements may be subject to judicial scrutiny, including as to whether they were reasonably and necessarily incurred.

Importantly, the Court's observations applied not only to one-off items or discrete sums, but also to larger disbursements, such as legal expenses, paid during the course of longer retainers.

In the result, the Court was satisfied with the material available to support the disbursements charged to the insolvent estate by the Liquidators, but only after the Judge called for further material in support of the claim.

The point remains, however, that liquidators must exercise caution not only in relation to their own remuneration, but also in supervising the incurrence of disbursements with outside providers.

United Kingdom - Review of Insolvency Practitioner Fees

These two decisions come at an important period of time in the review and scrutiny of insolvency practitioner fees, not only in Australia but also abroad.

An United Kingdom report released in July 2013 titled Review of Insolvency Practitioner Fees - Report to the Insolvency Service by Elaine Kempson deals with similar issues and was commissioned in response to concerns about remuneration and expenses made by insolvency practitioners and the impact this has on the position of unsecured creditors and personal debtors.

Similarly, the Insolvency Service has produced several reports dealing with law reform and regulatory issues in relation to the fees of insolvency practitioners, such as Strengthening the regulatory regime and fee structure for insolvency practitioners and the 2013 Annual Review of Insolvency Practitioner Regulation. These reports set out measures to strengthen the regulatory regime, including proposals to amend the way in which insolvency practitioners charge fees in order to align remuneration with outcomes for creditors.