Liquidator and Administrator Remuneration: A Changing Landscape, - - PowerPoint PPT Presentation
Liquidator and Administrator Remuneration: A Changing Landscape, Recent Developments and Practical Discussion Joshua Kohn Lonsdale Chambers Insolvency Law Reform Act 2016 Numerous amendments were made to the provisions of the Corporations
Numerous amendments were made to the provisions of the Corporations Act
The ILRA introduced a new Insolvency Practice Schedule (Corporations) as
Schedule 2 to the Act (Practice Schedule).
The Practice Schedule contains new provisions relating to insolvency practice,
including the remuneration of administrators and liquidators.
Division 60 of the Practice Schedule provides that an ‘external administrator’
performed by him/her in relation to an ‘external administration’.
The amount of that remuneration will usually be set under a remuneration
determination, which can be made by (a) by resolution of the creditors; (b) if there is a committee of inspection and a determination is not made under para (a) -- by the committee of inspection. (c) if a determination is not made under para (a) or (b) – by the Court: section 60-10.
The commencement of the new provisions concerning remuneration in
Division 60 of the Practice Schedule was deferred until 1 September 2017.
Section 1581 of the Act was repealed and a new provision was substituted, as
follows: (1) Despite the repeal of sections 449E and 473 ... of the old Act by Schedule 2 to the [ILRA], the old Act continues to apply in relation to the remuneration of an external administrator of a company who is appointed: (a) before the start time; or (b) during the transition period
The Act as it was prior to the relevant amendments continues to apply in
relation to the remuneration of an external administrator of a company who was appointed before the ‘commencement day’ of the relevant sections of the Practice Schedule, being 1 September 2017
Section 60-12 outlines the factors which the Court must have regard in
determining whether the remuneration is reasonable.
These are:
(a) the extent to which the work by the external administrator was necessary and properly performed; (b) the extent to which the work likely to be performed by the external administrator is likely to be necessary and properly performed; (c) the period during which the work was, or is likely to be, performed by the external administrator; (d) the quality of the work performed, or likely to be performed, by the external administrator; (e) the complexity (or otherwise) of the work performed, or likely to be performed, by the external administrator;
(f) the extent (if any) to which the external administrator was, or is likely to be, required to deal with extraordinary issues; (g) the extent (if any) to which the external administrator 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 external administrator; (i) the number, attributes and conduct, or the likely number, attributes and conduct, of the creditors; (j) if the remuneration is worked out wholly or partly on a time-cost basis-- the time properly taken, or likely to be properly taken, by the external administrator in performing the work; (k) whether the external administrator was, or is likely to be, required to deal with one or more controllers, or one or more managing controllers;
(l) if: (i) a review has been carried out under Subdivision C of Division 90 (review by another registered liquidator) into a matter that relates to the external administration; and (ii) the matter is, or includes, remuneration of the external administrator; the contents of the report on the review that relate to that matter; (m) any other relevant matters.
Rules 9.2 of the Supreme Court (Corporation) Rules 2013. Applies in relation to an application for a determination under section 60-
10(1)(c) or (2)(b) of the Practice Schedule.
At least 21 days before filing an originating process or interlocutory process,
seeking the determination, the external administrator must serve a notice, in accordance with Form 16, of the external administrator’s intention to apply for the determination, and a copy of any affidavit on which he or she intends to rely.
Must be served on (a) each creditor who was present, in person or by proxy,
at any meeting of creditors; (b) each member of any committee of inspection; (c) if there is no committee of inspection, and no meeting of creditors has been convened and held - each of the 5 largest (measured by amount of debt) creditors of the company; (d) each member of the company whose shareholding represents at least 10% of the issued capital of the company.
Within 21 days after the last service, any creditor or contributory may give
notice of objection to the remuneration claimed, stating the grounds of
If no notice of objection is received, the external administrator may file an
affidavit in support of an application determination stating - (i) the date when the notice and affidavit were served; (b) that no response has been received; and (c) may request that the application be dealt with in the absence of the public and without any attendance.
If he or she receives a notice of objection, he or she must file an affidavit in
support of the application which (a) include evidence of the matters referred to in section 60-12 of the Practice Schedule; and (b) state the nature of the work performed or likely to be performed; and (c) the amount of remuneration claimed; and (d) a summary of the receipts taken and payments made; and (e) particulars of any objection; and (f) if the external administration is continuing, details of any matters delaying the completion
The principles concerning applications for approval are well established and
See Gardiner AsJ in IMO Traditional Values Management Limited (in liq)
[2012] VSC 650 and Davies J in Thackray v Gunns Plantations (2011) 85 ACSR 144.
Black J in the matter of Sakr Nominees Pty Limited [2017] NSWSC 668 (Sakr)
at [23]-[25] summarised the principles applicable to a claim for remuneration by an administrator or liquidator as including: (a) a liquidator or administrator is entitled to reasonable remuneration for his services;
(b) the liquidator or administrator bears the onus of establishing the remuneration he seeks is fair and reasonable; (c) in determining a liquidator’s or administrator’s reasonable remuneration, the Court will have regard to the matters specified in the Act; (d) the court must bring an independent mind to bear the question whether the remuneration sought by the liquidator or administrator is fair and reasonable; (e) the liquidator or administrator must lead evidence in sufficient detail that the court can determine that question;
(f) the court will generally need to be provided with an account in itemised form setting out at least the details of the work done, the persons who did the work, the time taken to perform the work, the remuneration claimed and, to the relevant extent, the expenses incurred; (g) proportionality is an important matter in considering the question of whether remuneration is reasonable and the “value” of a liquidator’s or administrator’s work (h) the benefit to the community is of not permitting assets to remain unproductive in the hands of a defunct company for a long period; (i) the fact that the work does not increase the funds available to distribution to creditors or contributories does not mean that the administrator or liquidator is not entitled to be remunerated for it;
(j) most decisions have applied time costing as at least the starting point for a calculation of remuneration, although the decisions also emphasise the need for proportionality between the cost of the work done and the value of the services provided; and (k) the Court of Appeal in Sanderson did not prefer any of the particular approach to remuneration over another approach (such as percentage of the assets realised). Whether time based remuneration or a percentage of recovery is appropriate in a particular case will depend, in part, on the basis
remuneration, in part, on the view taken by any persons who opposed the remuneration application and, in part, the view taken by the court.
Proportionality is an important matter in considering the question of whether
Many of the factors specified in section 60-12 have the concept of
proportionality as an underlying theme.
Work done must be proportionate to the difficulty and importance of the task
The fact that work does not increase the funds available for distribution to
creditors or contributories does not mean that the liquidator is not entitled to be remunerated for it, where it was reasonable to carry out that work and the amount charged is reasonable.
The “value” of a liquidator’s work can also include the benefit of resolving
company for a long period.
Often it may not be entirely clear what the precise benefit might be. A
situation where work was being performed to preserve property of known value is quite different to the situation where work was being performed to achieve a return to creditors.
It might be inappropriate to use a hindsight analysis of known returns after
the event to assess whether the work performed was proportional to the task.
Sometime it may be appropriate to consider expected realistic returns at the
Some work may be sufficiently complex and labour intensive such as to justify
a cost/benefit.
Numerous decisions regarding the method for calculating the remuneration of
Black in Sakr said at [24] the following: “Most decisions … have applied time
costing as at least the starting point for a calculation of remuneration, although those decisions also emphasise the need for proportionality between the costs of work done and the value of the services provided.”
His Honour concluded at [25]: “Whether time-based remuneration or a
percentage of recoveries is appropriate in a particular case will depend, in part, on the basis on which the liquidator put his or her application for remuneration; and, in part, the view taken by the Court.”
The Court must bear in mind that there are differences in the role of a
The Court should not approach remuneration in a way that would create a
substantial disincentive to a voluntary administrator determining to trade-on a business, so as to seek to maximise recovery for creditors, as distinct from immediately closing the business and selling its “hard” assets, to minimise his
respect of the administration, for which he or she may not be remunerated.
No: see Deputy Commissioner of Taxation v Starpicket Pty Ltd (No 2) [2013]
Sometimes, a liquidator may seek a direction that he or she would be
justified in paying certain disbursements in order to obtain prior protection in respect of such a disbursement.
The extent a liquidator is entitled to recoup a disbursement from the is a
questions of reasonableness.
The following people may apply:
(a) ASIC (b) a person with a financial interest in the external administration of the company (i.e. a creditor) (c) an officer of the company.
Usual grounds of opposition:
(a) unreasonableness. (b) insufficient description. (c) excessive. (d) education / administration.
Usual ground of opposition. Sometimes hard to compare market rates. Need to consider the description of the different positions. A manger in one firm may have different tasks from a manager in another
firm or there might be a division in one firm (e.g. Manager Level 1 and Manager Level 2).
See Lock, in the matter of Cedenco JV Australia Pty Ltd (in liq) (No 2) [2019]
FCA 93.
The Court must:
(a) affirm the remuneration determination; or (b) vary the remuneration determination; or (c) set aside the remuneration determination and substitute another remuneration determination.
There is no absolute rule regarding the amount of detail required to support a
remuneration claim. But the evidence relied on should be sufficient to enable potential objectors to review the amounts claimed and ascertain whether there are matters to which objection should be taken. If there is inadequate evidence supporting the claim, no order should be made.
The Court will generally need to be provided with an account in itemised
Also a table summarising identifying the persons who did the work, the grade
A summary procedure is involved, not unlike that applicable to the taxation of
In some circumstances time sheets may be necessary. If you are opposing a remuneration determination on the grounds of
In Victoria, administrators and liquidators are usually not cross examined in
There is no reason why they cannot or should not be cross examined. Common in larger matters. Administrators and liquidators need to go through their WIP reports in detail
at the time they prepare their remuneration reports. The Court expects that this task is carried out before the report is prepared.
Wrong to assume entitled to every unit charged to the matter without
assessing whether the remuneration was reasonable and calculated on the basis of the time reasonably spent.
Joshua Kohn Lonsdale Chambers Ph: 9225 6756. Email: joshua.kohn@vicbar.com.au