Australia: Sakr appeal (Remuneration of liquidators) successful

In November last year, the Court of Appeal heard the appeal from the decision of Justice Brereton on Mr Cliff Sanderson's remuneration application in Sakr Nominees Pty Ltd. Justice Brereton had held that liquidators' remuneration in "small" liquidations should be calculated as a small percentage of realisations and distributions rather than on a time cost basis ("ad valorem" remuneration). We have previously reported on the appeal hearing and the decision before Justice Brereton in our June 2016 article Remuneration of administrators cases show courts' lack of consistency.

Today the Court of Appeal upheld Mr Sanderson's appeal and accepted the principal arguments we raised, namely that:

  • The application of the concept of proportionality is only one factor in determining the reasonable remuneration of a liquidator.
  • There is no reason why time costing should not be accepted in smaller liquidations.

In reaching their decision, the Court has largely adopted the reasoning of Justice Black in In the matter of Idylic Solutions Pty Ltd as trustee for Super Save Superannuation Fund and others [2016] NSWSC 1292. This judgement post-dated the original decision in Sakr and was informed by it and other decisions on the remuneration issue.

In Idylic, Justice Black said that:

  • a claim for time-based remuneration would be tested by reference to the percentage of realisations.
  • it's incumbent upon liquidators (and administrators) to provide detailed evidence to allow the courts to consider the remuneration claim when it is made on a time cost basis and compare that to a percentage basis.
  • only reasonable remuneration will be allowed.

Justice Black's reasoning is consistent with the Full Court of the Federal Court's decision in Templeton v Australian Securities and Investments Commission [2015] FCAFC 137.

The Court found that:

  1. It is not appropriate to fix remuneration on an ad valorem basis by simply applying a percentage without regard to the particular work required to be carried out.
  2. "Proportionality" is an important factor in assessing reasonableness of a liquidators' remuneration application.
  3. In considering the question of proportionality, in terms of the size of the property, and in determining reasonableness, the work done must be proportionate to the difficulty and importance of the task in the context in which it needs to be performed.
  4. A percentage-based analysis of what is realised in a liquidation provides an objective measure for considering the remuneration claimed.
  5. The mere fact that the work performed does not lead to an augmentation of the funds available for distribution does not mean that the liquidator is not entitled to be remunerated for it.
  6. The statute does not mandate a separate approach for smaller liquidations.
  7. The primary Judge erred in failing to consider the evidence presented by the liquidator and the factors relevant to the assessment of remuneration. The primary Judge also erred in focusing solely on proportionality and failing to consider the work actually done, and whether the amount charged for it was appropriate to the difficulty and complexity of the task performed.

Colin Biggers & Paisley decided to run this appeal on a pro bono basis. Counsel Vanessa Whittaker led Louise Hulmes in persuading the Appeal Court to overturn the original discussion.

Our decision to support Mr Sanderson, and the profession generally, and run the Appeal on that basis was made for three reasons:

  1. Liquidators in small liquidations (to which the judgment at first instance related) would not find it commercially viable to run such an appeal.
  2. A successful appeal would see all jurisdictions in the Commonwealth aligned on remuneration.
  3. The issue is of great significance to the profession and needed to be considered and determined by the Court of Appeal in NSW given the uncertainty that existed.

As a consequence of this decision, New South Wales is now aligned with all other states in the Commonwealth and indeed the Federal Court on this important issue.

A short time before the appeal was heard both ASIC and ARITA became involved to assist the Court. ASIC argued for percentage-based remuneration and ARITA resisted that argument largely supporting the arguments put by Mr Sanderson that time-based remuneration was in most cases, subject to creditor and court approval, perfectly appropriate. The position taken by Mr Sanderson has been vindicated by the decision of the Court of Appeal.

Mr Sanderson should be congratulated for having made the decision as a matter of principle on behalf of the profession to see the appeal through, particularly given the smaller relative size of the liquidation. Smaller liquidations make up by far the majority of the profession's work and the profession is entitled to be fairly remunerated for that work.

A more detailed analysis will be uploaded to our website next week.

Peter Harkin Scott Hedge Damien Butler Nigel Watson
Restructuring and insolvency
Colin Biggers & Paisley

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.

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