Particularly in smaller external administrations, the
court will not blindly accept time-based remuneration as reflecting
the value of the work, but will consider the proportionality of the
In a number of recent judgments, the courts appear to be
favouring considerations of proportionality coupled with an
assessment of the realisations achieved when assessing application
for the approval of remuneration for external administrators.
A liquidator's/receiver's remuneration must be
"reasonable". The courts have held that what is
reasonable cannot be assessed solely on the time spent as against a
quoted hourly rate. Instead, there has been a move to review,
particularly in smaller scale external administrations,
reasonableness as against a number of factors including the risk
assumed, the value generated, and proportionality.
There has been an emphasis on the fact that remuneration
assessed against the value added, rather than the time spent by
practitioners, is inherently proportionate and, it is said,
incentivises the creation of value.
In light of the recent decisions, it is clear that, particularly
in smaller external administrations, the court will not blindly
accept time-based remuneration as reflective of the value of the
work conducted, but will consider the concept of proportionality of
the remuneration sought. A number of factors will be considered
when assessing proportionality, including:
the complexity of the matter;
the recovery obtained; and
the amount of the distributions paid.
In that respect, and linked with the concept of proportionality,
courts have been considering the value of the gross realisations
recovered by a liquidator when assessing what would be an
appropriate amount to be paid as remuneration. In cases where only
a small return is achieved, particularly if the liquidator has had
to do little to obtain that return or where risk has been moved to
an alternative party (such as a real estate agent), the courts have
been reluctant to approve any substantial remuneration claim.
By way of illustration, in the case of Gramarkerr Pty Limited
(No 2)  NSWSC 1405, the liquidator of a small family company
retained external agents and solicitors to act on his behalf in
relation to the sale of the only asset (representing a transfer of
risk). The Court considered that remuneration based on a scale of
10% on the first $100,000 of realisations and 5% thereafter was
In preparing any necessary application seeking approval of
remuneration, to improve the prospects of obtaining approval for
the remuneration sought, external administrators should be
conscious to ensure that thorough evidence is provided to the
court. That evidence should:
detail why the work conducted was required (particularly if
that work may be considered in excess of the norm);
explain the complexities encountered;
indicate whether creditor approval for the remuneration has
been obtained (and if not why); and
state the recovery achieved by the liquidators and the likely
distribution to creditors.
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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The article considers protection afforded to directors by section 440J during administration, in light of this decision.
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