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 Act 2001 ( Act ) relating to external administrators by the Insolvency Law Reform Act 2016 ( ILRA ).  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’ of a company is entitled to receive remuneration for necessary work properly 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 .

When does the old regime apply?  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  Section 1581 of the Act was repealed and a new provision was substituted, as follows: ( 1) Despite the repeal of sections 449E and 473 ...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

What factors does the Court consider when making a remuneration determination?  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.

What is the process of applying for approval of remuneration?  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 objection.  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 of the external administration.

How are the remuneration factors applied?  The principles concerning applications for approval are well established and have been referred to in many decisions.  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 on which the liquidator or administrator puts his or her application for a remuneration, in part, on the view taken by any persons who opposed the remuneration application and, in part, the view taken by the court.

What is proportionality?  Proportionality is an important matter in considering the question of whether remuneration is reasonable.  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 in the context in which it needs to be performed.  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.