A recent judgment of the Supreme Court of NSW, In the matter of Say Enterprises Pty Ltd  NSWSC 396 provides timely guidance to interim receivers and managers to ensure that work is properly and reasonably performed pursuant to their appointment.
A receiver and manager is entitled to the costs properly incurred in the discharge of their ordinary duties, the amount of which may be fixed by the Court. The onus is on the receiver and manager to show that the amount of the remuneration claimed is fair and reasonable and that the work was properly performed in the course of the administration.
In this case, on 10 August 2017, Antony Resnick and David Solomons were appointed interim receivers and managers of Say Enterprises Pty Ltd until 25 September 2017. The primary objective of their appointment was to secure the company's bank accounts and continue trading operations on an interim basis (41 days). This had been substantially achieved by 11 August 2017, after which they were required as managers to carry on and manage the business to preserve its value.
On 3 October 2017, the receivers and managers brought an application in the Supreme Court for, among other things, approval of their remuneration in the amount of $85,675.26 plus GST, and a direction that they were authorised to pay disbursements for legal fees (totalling $35,831.64), search fees, copying and insurance fees.
Justice Brereton held that it was not reasonable in this case for the receivers and managers to undertake some of the work for which they claimed remuneration as the work went far beyond what was required of interim receivers and managers – that is, preservation of the company business and the status quo.
His Honour stated that:
"Having secured the assets, the function of the receivers was to carry on the business, as it was, until the Court resolved its future. As interim receivers, they could and should not have acted on the assumption that they would remain in office any longer than was provided for by the interim orders. They were justified in undertaking only such work as was necessary to enable them to carry on the business for the period fixed for the time being by the then operative order of the Court".
His Honour found that although receivers are afforded significant powers under section 420 of the Corporations Act 2001 (Cth), it will not always be reasonable for an interim receiver to invoke them. He held that "an interim receiver - and an interim receiver and manager - is not equivalent to a provisional liquidator", but rather:
"The function of a receiver is to serve as a repository of the assets to which the receiver is appointed. The receiver's function is to receive the property in issue. A manager admittedly has more extensive functions ... The essential distinction is that the receiver and manager has the power to carry on the business of the company, whereas the receiver has not."
Work which was considered unreasonable in this case and outside the scope of works required of interim receivers and managers, included:
- investigations into the company's affairs, including the "status of the company's contractors (including their remuneration, visa status, whether they were in truth employees and not contractors), the sales practices of the company, and its compliance with workplace and superannuation laws";
- "conducting extensive negotiations with the parties and their legal representatives, including as to the trading of the company's business, and with respect to attempts to resolve the dispute between the parties";
- "considering the possible sale of the business of the company";
- engaging a forensic information technology expert to attempt to obtain access to information regarding the company; and
- engaging solicitors to make an application to the court for directions and preparing a report on their investigations into the affairs of the company, which they were not required to provide as part of their appointment.
His Honour further held that:
"In the context of their interim appointment, absent the court's direction to do so, it was not within the scope of their function to undertake an extensive investigation of the affairs of the company, such as a liquidator or even a provisional liquidator might, let alone to explore the sale of the company's business. Nor was it any part of their functions to act as mediators in the underlying dispute".
In the circumstances, the remuneration of the receivers and managers was fixed at $55,000 plus GST.
What does the decision mean for you?
This decision reinforces the role of interim receivers and managers and the approach taken by the Court when fixing their remuneration.
The Court will only allow remuneration for works reasonably performed in accordance with the scope of works required.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.