Latest Supreme Court Views on Liquidators’ Remuneration

A NSW Supreme Court judge has spoken about “liquidators’ preference for time-based remuneration, and courts’ scepticism of it” at a major conference of senior judges and lawyers in Sydney last week. Justice Ashley Black presented his paper at the Conference on Corporations Law held by the Federal Court of Australia and the Law Council. Federal Court Judges and senior Law Council lawyers and academics from around the country attended.

The issues Justice Black raises in his paper are understood.

He usefully alerts us to the impact of the 2017 law changes on remuneration. It may be that those changes will resolve or dilute the issues the Judge raises, although these changes are now further delayed until September 2017.

The new corporate remuneration regime

The new regime in corporate insolvency for approval of remuneration will be largely the same as before, with the primary decision makers being the creditors or the committee. As now, there are no statutory criteria set by which they may decide upon remuneration. The courts, either the Supreme Courts or the Federal Court, may only be involved as a last resort.

However the process for review of remuneration is now changed, with a regime being established that need not involve the courts.  Any of ASIC, the Court, the creditors or the members may select and appoint a registered liquidator to review whether a practitioner’s remuneration is reasonable and whether costs and expenses have been properly incurred. This process is in lieu of ASIC itself taking on the reviewing role, one assumed in bankruptcy by AFSA. The task of the reviewing liquidator appears comparable to that of a legal costs assessor.

There are precedents for a review regime of insolvency practitioner remuneration needed for the Insolvency Practice Rules, Part XIII of the former Bankruptcy Rules being one, with necessary natural justice processes.

Reasons for decision

The reviewing liquidator will need to be able to give reasons for their decision, in the same way that court registrars and judges now do.

Published reasons will ensure transparency and fairness of the process and offer on-going education and development of principles. Otherwise the impact on practice and culture will be considerably lessened, in particular given that there are no statutory criteria set by the law.

It is then that the views of the courts may become less the subject of focus. Instead the body of knowledge and guidance built up by the reviewing liquidators in their decisions will become the source of good remuneration practice, a process that has developed in the assessment of legal costs, evident in long established texts such as Quick on Costs.  Professional code and other guidance will also assist.

Transitional arrangements

Justice Black warns us to be careful of the transitional arrangements under the ILRA 2016 although in relation to remuneration they appear straightforward.  The general rule is that Division 90 of the Corporations Schedule applies in relation to an ongoing external administration no matter when the matter to be reviewed, including remuneration, arose: s 1615 ILRA.

For example, the Court’s power to make an order in relation to remuneration under s 90-15(3)(f) applies whenever the remuneration is or was paid or payable. As to reviewing liquidators, sections 90-24 and 90-26 applies in the same way: ss 1619(2), 1619(3).

This means that remuneration being incurred and claimed now is potentially the subject of review under the new regime.

Any comments or other views are welcome.

Next, the process of trustee remuneration review by the Inspector-General in Bankruptcy – same but different

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