By Declan Kissane
Earlier this month the New South Wales Court of Appeal delivered its decision in the much awaited Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr [1] appeal relating to the operation of section 473(10) of the Corporations Act 2001 (the Act). That section relates to the matters a Court should consider when determining a liquidator’s remuneration for the purposes of section 473(3) of the Act.
Summary of the Key Points
The liquidator’s appeal was successful and the Court ordered that the determination of the liquidator’s remuneration be remitted for rehearing.
The key points from the appeal are as follows.
- The statute does not mandate a separate approach for smaller liquidations.
- There is no general rule that in the ordinary course of determining remuneration in smaller liquidations, the calculation of fees on an ad valorem basis is to be preferred.
- While section 473(10)(h) of the Act provides as a relevant factor the value and nature of any property dealt with or likely to be dealt with, it is just one of the factors to be considered.
- It remains the responsibility of the Court to fix reasonable remuneration on the evidence before it, taking into account each of the matters referred to in section 473(10) of the Act.
Background
The liquidator of Sakr Nominees Pty Ltd (in liq) was appealing the decision of Justice Brereton which had controversially fixed the liquidator’s fees in the amount of $20,000. His Honour’s determination was based on an ad valorem rate rather than allowing remuneration based on the liquidator’s firm’s standard hourly rates.
The Court of Appeal was constituted by five members including Bathurst CJ who provided the only substantial reasons for the decision with the other members agreeing with the Chief Justice’s decision and reasons.
The appeal was important because there had been recent divergence in authority between first instance decisions before the NSW Supreme Court and decisions in before the Federal Court. Much of the controversy regarding the operation of section 473(10) came from earlier decisions of Justice Brereton. [2]
Section 473(10) of the Act prescribes that:
“ In exercising its powers under subsection (3), (5) or (6), the Court must have regard to whether the remuneration is reasonable, taking into account any or all of the following matters ….”.
The section then lists 11 specific matters for the Court to consider as well as the catch all “any other relevant matter”. [3]
The Primary Judge’s errors
The Court Appeal found that the primary judge erred by:
- not giving any consideration to the value of the additional work completed by the liquidator when fixing the remuneration at $20,000;
- not taking the evidence presented by the liquidator into account or considering any of the factors in section 473(10) of the Act relevant to the assessment of remuneration; and
- focusing solely on the question on proportionality;
- failing to give consideration to the work actually done and whether the amount charged for it was proportionate to the difficulty and complexity of the tasks to be performed.
The Liquidator’s Argument
In support of the appeal the liquidator argued that once it was established that the work was necessary and was performed in a reasonable and timely fashion, the value of the work involved was an irrelevant consideration. [4]
The Court rejected this proposition out of hand saying that the primary judge was entitled to consider the value of the work as it was one of the factors in section 473(10) that must be taken into account. [5]
That being said, the Court accepted that the fact that the work was required and that there was no evidence that the rates charged or hours spent were excessive was a highly relevant factor. [6]
Further, the Court recognised that some of the liquidator’s other criticisms of the primary judge had greater force. In particular, that:
· The primary judge inappropriately focused solely on proportionality.
· In focusing solely on proportionality, the primary judge failed to give consideration to the work actually done and whether the amount charged for it was proportionate to the difficulty and complexity of the tasks to be performed.
Submissions on behalf of ASIC and ARITA
Significantly, the ASIC and ARITA were also represented at the hearing of the appeal and made separate submissions to the Court.
In summary the ASIC’s submission [7] was that in the ordinary course of determining remuneration in smaller liquidations, the calculation of fees on an ad valorem basis was to be preferred.
In argument the ASIC conceded that to suggest that ad valorem remuneration should always be preferred or adopted without modification or regard to the facts would fetter the discretion of the Court and is not supported by section 473(10) of the Act.
At the other extreme ARITA’S primary submission [8] was that the time based methodology is the best method of calculating reasonable remuneration in the format of section 473 (10) of the Act.
While ARITA accepted that it may be legitimate to use percentage based calculation as a cross check it submitted that time based methodology remained the best method of calculating reasonable remuneration pursuant to section 473(10).
To the extent that they should be propositions of general application, the Court rejected both the ASIC’s and ARITA’s respective submissions that ad valorem and time billing were the preferred methodology.
The Court emphasised that it is the responsibility of the Court to fix reasonable remuneration on the evidence before it, taking into account each of the matters referred to in section 473(10). [9]
Because the decision does not go so far as to anoint time charging as the correct basis for calculating remuneration, it is likely that some liquidators will be disappointed. However, having regard to the terms of section 473(10) such an outcome in the appeal was highly unlikely.
Any disappointed liquidators should be heartened the following two passages from the reasons of Bathurst CJ at paragraphs [57] and [58]:
“[57] I would add two matters. First, the mere fact that the work performed does not lead to augmentation of the funds available for distribution does not mean the liquidator is not entitled to be remunerated for it. The most obvious example is work done by a liquidator in complying with his or her statutory obligations. As Farrell J pointed out in Warner, Re GTL Tradeup Pty Ltd supra at [71] it is relevant to consider whether the work was necessary to be done. If it was, there is no reason the liquidator should not be remunerated for it.
[58] Second, there are commonly cases where work is undertaken in an unsuccessful attempt to recover assets whether at the request of creditors or otherwise. Provided it was reasonable to carry out the work and the amount charged for it was reasonable, there is no reason a liquidator should not recover remuneration for undertaking the work. …”
Conclusion
It’s fair to say that the New South Wales Court of Appeal’s decision represents a sensible and balanced approach that is entirely consistent with the statutory mechanism. In that regard the case is actually unremarkable.
Nonetheless it is still an important appeal because it provides a level of certainty to insolvency practitioners as to how the Court should approach their applications for remuneration once they have undertaken the important function of winding up insolvent companies.
[1] [2017] NSWCA 38.
[2] See for example Re AAA Financial Intelligence Ltd (in liquidation) (No.2) ACN 093 616 445 [2014] NSWSC 1270.
[3] Section 473(10)(a) to (l).
[4] Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr [2017] NSWCA 38 at paragraph [61].
[5] Ibid at paragraph [61].
[6] Ibid at paragraph [61].
[7] Ibid at paragraphs [31] to [38].
[8] Ibid particularly at paragraphs [39] and [48].
[9] Ibid at paragraph [65].
