Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr  NSWCA 38 (9 March 2017)
At issue in these proceedings determined by a five-member bench of the New South Wales Court of Appeal (Bathurst CJ, Beazley P, Gleeson JA, Barrett AJA and Beach AJA) was whether the primary judge erred in determining a liquidator’s remuneration under s. 473(3)(b)(ii) of the Corporations Act, 2001 (Cth) (Act).
The judgment the subject of the appeal was one of a series of decisions by Brereton J in which his Honour had found 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.
The Court of Appeal held that s. 473 of the Act does not provide for any particular method of calculation but refers to remuneration by way of percentage or otherwise and that it would not be appropriate to fix remuneration on an ad valorem basis by simply applying a percentage considered appropriate to all liquidations or to a particular class of liquidations without regard to the particular work done or required to be done in the liquidation in question.
In considering remuneration, a court must have regard to the requirements of s. 473(10), all of which with the possible exception of s 473(10)(l), are directed to the particular liquidation under consideration by the Court. If a judge came to the view that remuneration calculated by way of a particular proportion of assets recovered or assets distributed was reasonable, he or she would be entitled to fix remuneration on that basis. Similarly, if a judge after considering the work done and the relevant factors in s. 473(10) concluded that remuneration calculated on a time basis was reasonable, he or she would be entitled to fix remuneration on that basis.
Section 473(3) of the Act sets out the relevant provisions concerning the remuneration of liquidators. It provides as follows:
“473(3) A liquidator is entitled to receive such remuneration by way of percentage or otherwise as is determined:
(a) if there is a committee of inspection—by agreement between the liquidator and the committee of inspection; or
(b) if there is no committee of inspection or the liquidator and the committee of inspection fail to agree:
(i) by resolution of the creditors; or
(ii) if no such resolution is passed—by the Court.”
- Section 473(5) empowers the Court to review the liquidator’s remuneration in certain circumstances, whilst s 473(10) states matters to be taken into account by the Court in exercising its power under s 473(3) and s 473(5). It is in the following terms:
“473(10) 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:
(a) the extent to which the work performed by the liquidator was reasonably necessary;
(b) the extent to which the work likely to be performed by the liquidator is likely to be reasonably necessary;
(c) the period during which the work was, or is likely to be, performed by the liquidator;
(d) the quality of the work performed, or likely to be performed, by the liquidator;
(e) the complexity (or otherwise) of the work performed, or likely to be performed, by the liquidator;
(f) the extent (if any) to which the liquidator was, or is likely to be, required to deal with extraordinary issues;
(g) the extent (if any) to which the liquidator was, or is likely to be, required to accept a higher level of risk or responsibility than is usually the case;
(h) the value and nature of any property dealt with, or likely to be dealt with, by the liquidator;
(i) whether the liquidator was, or is likely to be, required to deal with:
(i) one or more receivers; or
(ii) one or more receivers and managers;
(j) the number, attributes and behaviour, or the likely number, attributes and behaviour, of the company’s creditors;
(k) if the remuneration is ascertained, in whole or in part, on a time basis:
(i) the time properly taken, or likely to be properly taken, by the liquidator in performing the work; and
(ii) whether the total remuneration payable to the liquidator is capped;
(l) any other relevant matters.”
Section 504 of the Act is the applicable remuneration provision for voluntary winding up generally and entitles any member or creditor or the liquidator at any time before deregistration of the company, to apply to a court to review the amount of the remuneration of the liquidator. Section 504(2) provides for the same matters to be taken into account as those referred to in s 473(10). Similar provisions are made in respect of the Court’s power to fix the remuneration of receivers and administrators (s 425(8) and s 449E(4)).
The company was wound-up on 3 September 2012 with its only significant asset being three adjacent real properties which the liquidator realised for $3.72 million.
The liquidator paid some $2 million to secured creditors and around $904,000 to unsecured creditors out of the proceeds of the sale of the property. The creditors were paid out by 10 December 2014, leaving a surplus of $517,830.
In the application before the primary judge, the liquidator sought orders that he be justified in paying an amount in respect of legal costs to his solicitors. Approval was given to that payment. In addition, the liquidator sought determination of fees which had not been approved by resolution of the creditors. Those fees, totalling $63,577.80 was for additional work undertaken by the liquidator. The application was necessary as the creditors had been paid out and thus it was impossible to get approval for the fees sought from either a committee of inspection or by resolution of the creditors.
The primary judge approved additional remuneration on of $20,000. The liquidator contended that his Honour erred in the manner he arrived at that conclusion.
The primary judgment
The primary judge, referring to s. 473(10) of the Act stated that remuneration may be by way of commission on assets realised or distributed or on a time basis. He found that liquidators would not necessarily be allowed remuneration at their firm’s standard hourly rates, particularly in smaller liquidations where questions of proportionality, value and risk loomed large and that liquidators cannot be expected to be rewarded for their time at the same hourly rate as would be justifiable if more property was available.
In that context the primary judge referred to his remarks in Re AAA Financial Intelligence Ltd (in liquidation) (No 2) ACN 093 616 445 to the effect that it was wrong to assess reasonable remuneration by reference only to time reasonably spent at standard rates which though a consideration, is only one of several and should not be regarded as the default position or dominant factor but was to be considered in the context of other factors including the risk assumed, the value generated and proportionality.
His Honour said that whilst not without its shortcomings, ad valorem remuneration is inherently proportionate and incentivises the creation of value rather than the disproportionate expenditure of time. Whilst his Honour accepted that the liquidator was justified in attending to the additional work in respect of which remuneration was sought, he found that $20,000 was in all the circumstances reasonable and proportionate.
The issues on appeal
The liquidator argued that the primary judge erred 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 liquidator’s work;
- applying arbitrary rates ofad 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 s 473(3)(b)(i) of the Act on the basis of time costing.
The Court of Appeal
The judgment of the Court was delivered by Chief Justice with whom the President and other the judges of appeal agreed.
The Chief Justice noted that whilst 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, the critical question was whether the judge erred in his determination of reasonable remuneration.
“Section 473 of the Act does not provide for any particular method of calculation but refers to remuneration by way of percentage or otherwise. Thus if a judge taking into account the evidence of the work done and the matters in s. 473(10) came to the view that remuneration calculated by way of a particular proportion of assets recovered or assets distributed was reasonable, he or she would be entitled to fix remuneration on that basis. Similarly, if a judge after considering the work done and the relevant factors in s 473(10) concluded that remuneration calculated on a time basis was reasonable, he or she would be entitled to fix remuneration on that basis.”
However, the Court said that it would not “…be appropriate to fix remuneration on an ad valorem basis by simply applying a percentage considered appropriate to all liquidations or to a particular class of liquidations without regard to the particular work done or required to be done in the liquidation in question. To do so would pay no regard to the requirements of s 473(10), all of which with the possible exception of s 473(10)(l), are directed to the particular liquidation under consideration by the Court.”
The onus is on the liquidator to establish that the remuneration claimed is reasonable and it is the function of the Court to determine the remuneration by considering the material provided and bringing an independent mind to bear on the relevant issues. Further, the Court noted that it would be expected that the liquidator in supplying material to enable the Court to assess whether a remuneration claim was reasonable, would supply material by reference to the matters referred to in s 473(10).
The Court emphasised that the question of proportionality still has a bearing on the task to be undertaken by the Court. As the Federal Court said in Templeton v ASIC (at ) the question of proportionality is a well-recognised factor in considering the question of reasonableness and the factors in s 425(8)(d)-(e) and (g)-(h) (the equivalent to s 473(10)(d)-(e) and (g)-(h)) have as their unifying theme the concept of proportionality.
Further, as was pointed out by Black J in Idylic Solutions Pty Ltd evidence as to the percentage that remuneration constitutes of realisation, will at least provide a measure of objective testing of the reasonableness of the remuneration claimed and will identify those cases in which there ought to be a real concern in that respect.
The Court also provided the following by way of useful guidance:
- 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;
- 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;” and
- it should not be concluded that a time based calculation will always be appropriate. The task of the Court is to fix reasonable remuneration having regard to the evidence before it and taking into account the matters in s 473(10).
The Court found that the primary judge erred because:
- he did not seem to give any consideration to the value of the additional work in fixing the remuneration at $20,000;
- he did not appear to have taken the evidence presented by the liquidator into account or considered any of the factors in s 473(10) of the Act relevant to the assessment of remuneration. In my opinion, he erred in failing to do so;
- in focusing solely on the issue of proportionality, his Honour failed to give consideration to the work actually done and whether the amount to be charged for it was proportionate to the difficulty and complexity of the tasks to be performed; and
- he did not adopt any particular rate in arriving at the figure of $20,000 additional remuneration. Whatever methodology is adopted, the task of the Court is to determine on the evidence before it and taking into account the factors in s 473(10) of the Act whether the remuneration is reasonable.
Barrett AJA made the point that it is “impossible to say, as a general proposition, that any given basis – whether according to time, value, extent of recoveries, size of company, nature of company or any other factor – merits any claim to precedence over any other in the matter of determination of liquidators’ remuneration.”
In the result, the appeal was allowed and the proceedings remitted to a judge of the Equity Division of the Court for rehearing
 Re AAA Financial Intelligence Ltd (in liquidation) (No 2) ACN 093 616 445  NSWSC 1270; Re Gramarkerr Pty Ltd (No 2)  NSWSC 1405; Re Hellion Protection Pty Ltd (in liq)  NSWSC 1299
  NSWSC 1270 at 
 Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96; (1998) 16 ACLC 1653; Conlan (as liquidator of Rowena Nominees Pty Ltd) v Adams (2008) 65 ACSR 521;  WASCA 61 at -.
  NSWSC 1292 at 
 Hall v Poolman (2009) 75 NSWLR 99;  NSWCCA 64 at -