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NSW Court of Appeal Weighs in on Liquidator Remuneration

On 9 March 2017, in Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr [2017] NSWCA 38, the NSW Court of Appeal delivered an important judgment on the controversial issue of the fixing remuneration of Liquidators.

A line of recent decisions in the Supreme Court of NSW on point have been decided by reference to the ad valorem methodology, where this methodology left Liquidators short-changed having regard to their time costs. Such decisions focused heavily, or exclusively, on the proportionality between the remuneration claimed and the value of assets realised.

A concern for insolvency industry participants arising out of the recent decisions of the Supreme Court of NSW has been whether low-value but difficult liquidations could be properly dealt with.

The Court of Appeal has found error in an exclusive focus on the ad valorem methodology in fixing Liquidator remuneration. It has instead preferred an approach that pays appropriate regard to all of the relevant factors stipulated by s 473(10) of the Corporations Act 2001 (Cth) (the Act).

Some key findings of the Court of Appeal were as follows:

• A “highly relevant factor” in assessing the reasonableness of remuneration claimed by a Liquidator will be evidence of the Liquidator performing necessary work at reasonable hourly rates, although a time-based approach will not necessarily always be preferred.

• Proportionality, in terms of work done compared to the size of property or activity the subject of administration, is a relevant factor in assessing remuneration, however, an assessment of reasonable remuneration based only on this methodology may lead to error.

• The difficulty and complexity of work performed is a relevant consideration in assessing the reasonableness of Liquidator remuneration.

• Unsuccessful attempts to realise assets (including by way of litigation) may found claims for reasonable remuneration.

• There is no mandate arising under s 473(10) of the Act that smaller liquidations must be treated differently to bigger liquidations, however, s 473(10)(h) sets out that a relevant factor in fixing remuneration is the value and nature of any property to be dealt with.

Ultimately, the Liquidator’s appeal succeeded. The matter has been remitted to the Supreme Court of NSW for determination having regard to the findings of principle of the NSW Court of Appeal.

ASIC and ARITA both made submissions in the appeal proceedings. ASIC made submissions to support, in large part, the ad valorem methodology of fixing Liquidator remuneration. ARITA, however, made submissions in favour of time-costing, consistent with the Liquidator’s submissions.

This judgment will be of great interest and relief to Liquidators and other insolvency industry participants.

It resolves much of the recent controversy in New South Wales on the topic of fixing Liquidator remuneration. The Court of Appeal has mandated a balanced approach in which all of the applicable statutory principles are given due consideration, with the appropriate method of assessing remuneration to fall out having regard to the circumstances of a particular case.

Importantly, the Court of Appeal has provided some practical support to Liquidators in their pursuit of the prudent conduct of all liquidations, big and small.

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