By now, I’m sure most insolvency professionals have read numerous papers and articles on the New South Wales Court of Appeal judgement in Sanderson as Liquidator of Sakr Nominees Pty Ltd (In Liquidation) v Sakr  NSWCA 38. The majority that I have looked at have indicated that the result is a sanctioning of Liquidators charging for remuneration on an “hourly rate” system. However, upon reading the judgement, I’m not so sure that this is the case. In fact, I wonder, in the current changing climate of insolvency practice, whether this may give a gentle indication of possible “disruption” to the way insolvency practitioners may charge, or indeed what stakeholders may expect, moving forward.
The Court of Appeal case involved five issues raised by the liquidator of Sakr Nominiees Pty Ltd (In Liquidation) (“Sakr Nominees”) against the original ruling of Brereton J in which he limited the Liquidator’s remuneration based on proportionality of the pool of funds recovered in the liquidation and without due regard to the time charged by the Liquidator and his staff at the firm hourly rates.
The issues on appeal concerned whether the primary judge erred in determining the Liquidator’s remuneration by:-
Failing to take into account the reasonableness of the work performed (or to be performed) by particular persons, how long it took (or would take) to do the work, their hourly rate; the rate charged (or to be charged) and the value of the work;
Misapplying considerations of proportionality; including the determination of the ‘value’ of the Liquidator’s work;
Applying arbitrary rates of ad valorem remuneration;
Finding that, in smaller liquidations, Liquidators cannot expect to be rewarded for their time at the same hourly rate as would be justifiable when more property is available; and
Failing to take into account that from the commencement of the liquidation the creditors had approved remuneration pursuant to s473(3)(b)(i) of the Corporations Act 2001 (Cth) (“Act”) on the basis of time costing.
Whilst the appeal was allowed, there were some important and telling points made in the decision.
Firstly, the Court noted that “much of the debate during the course of the hearing centred on the respective merits of what were described as time based remuneration and ad valorem remuneration”, but that the critical question was whether Brereton J had erred in his determination of reasonable remuneration. It goes on to refer to Section 473 of the Corporations Act 2001 (Cth) (“Act”) which does not provide for any particular method of calculating a Liquidator’s remuneration, but rather refers to remuneration by percentage or otherwise. It would be appropriate for a Judge, taking into account the work done and the matters in s473(10) to come to the conclusion that a Liquidator’s remuneration should be calculated with reference to the proportion of assets realised or distributed and to fix it accordingly. If a Judge considering the same factors established that it was reasonable to calculate the remuneration on a time basis, they could also fix it accordingly. The issue that the NSWCA had with Barrett J’s determination, appeared to be that it was not appropriate to fix remuneration on an ad valorem basis by using an arbitrary percentage figure across all liquidations, with no consideration of work completed or required in the actual matter in question.
Bathurst CJ goes on to say that while not all of the factors in s473(10) may be relevant in a particular case, for a court not to take any of them into account would constitute an error. The Chief Justice is careful to point out, however, that “it should not be concluded from what I have written that a time based calculation will always be appropriate.”
Accordingly, although the NSWCA allowed the appeal against Barrett J’s original finding, I think it leaves the door open for potential disruption to the traditional charging model in relation to liquidation appointments.
Although insolvency practitioners and, I hope, those with whom we work closely, can appreciate the work required in an appointment, it is understandably difficult for creditors to comprehend that in many appointments the lion’s share (if not all) of the funds realiz
ed into a liquidation are applied against the Liquidator’s fees and costs. I think that there is room for a more creative system of accounting for remuneration to be applied, perhaps, as some have suggested, by incorporating a hybrid charging system into each liquidation (ie: take a fixed fee for real property realization and charge for litigation on a time basis). The obvious elephant in the room, however, in relation the fixing of any fee in an insolvency appointment is the risk involved.
For example, it may be easy to think that if a liquidator has a property to sell, it would be a relatively straightforward exercise, and to charge a fixed percentage of realizations would be appropriate. However, consider that same property, but with EPA issues, unregistered mortgages and other proprietary claims which may come out of the woodwork (including potential trust issues) with which the Liquidator needs to deal. The costs involved in the disposal of that asset may far outweigh the arbitrary percentage at which the Liquidator has set their fees, with little recourse.
It would be great If we could somehow establish a fee model that took into account both proportionality and the relevant risk to liquidators. Thinking hats on…
This article is intended to provide general information only in summary format on relevant issues. It does not constitute legal or financial advice, and should not be relied on as such.