Liquidators riding a remuneration merry-go-round

The commentaries on how the judges assess, or should assess, the remuneration of liquidators is reaching saturation point, one practitioner likening it to being on a merry-go round – not only between percentage, time and outcome billing methods, but also between state and federal courts.

The concept of “proportionality” in assessing the reasonableness of insolvency remuneration is dissected and analysed, well beyond the legal position stated in the Corporations Act – s 425(8) and like provisions. (Although absent in bankruptcy, but these will align with the Bankruptcy and Corporations Schedules – see s 60-12 ILRA 2016).

Proportionality is not a new concept. It is applied in other parts of the law, and in business and in personal conduct.  A plumber may apply a discount for extensive work done (see Law and Plumbing in Essays on Law and Justice, 2012, Sedley), or a lawyer for an unwelcome judgment against a client. A judge should give a judgment of length and in time commensurate with the issues involved. ASIC will act on s 533 reports depending on the money and conduct involved, and the public interest (such reports are lodged in the thousands). Individuals put proportionate efforts into domestic tasks of varying personal importance.  

Proportionate or commensurate approaches to work and billing should therefore be second nature for any insolvency practitioner, or lawyer. 

Set out below are some more detailed judicial comments, against some of which a contrary position is put. Overall, “a principled basis” of assessment of remuneration by judges is required. 

Main points

The main points from these various judicial and other comments are these:

  • creditors must accept that the administration of an insolvency costs money; they well know that in commerce and business, it costs money to recover money, and proportionate assessments of recovery need to be made;
  • creditors are not the only interested parties.
  • a monetary outcome is not the only or even the main criterion for remunerating a liquidator – work may be done reasonably anticipating a financial outcome that does not eventuate; or pursuing investigations of breaches of the law;
  • a court should not proceed by some line by line analysis; rather, it should take a broad approach and may appropriately discount, but comparing like with like;
  • the creditors need not take these criteria into account – their decision should be made reasonably, but is legally ‘at large’.
  • a hindsight analysis is dangerous and potentially unfair;
  • a finding that time spent was simply “too high” is not valid – it should be based on evidence of another more efficient process.


Various judicial views, and comments in reply 

# ‘insolvency administration is inherently expensive’ because of the intensive nature of the investigation work liquidators must undertake, often in the face of records “in a shambles and sometimes deliberately deceptive”. Those asserting the justice of their claim must appreciate that securing an outcome is inherently costly. “It is unreasonable to demand that skilled professionals should perform their functions at low cost”. 

# given the nature of insolvency, charge out rates can be set at levels to recoup work done on assetless administrations

#as with any fiduciary it is necessary for remuneration to be justified.

# the appropriate test is to ask would the time spent have been undertaken by a reasonably prudent person faced with the same situation?

# while time is a relevant factor, the value of the services rendered is more important than the costs of rendering them.

# “while there was no tangible advantage to the creditors as a result of the efforts of the liquidators, the enquiries that they made and the attempts that they made to recover were ones which were properly undertaken by them. The liquidators represented the only prospect of the creditors receiving any appreciable recovery. It was in their interests that extensive efforts were made to investigate the affairs of the company and to review all possibilities of actions to recover the company’s money. That nothing came of those efforts is not in any way a matter for which the liquidators are to be criticized. Further, there was a strong public policy requirement that there be a proper investigation of the affairs of the company and the enquiries and investigations which the liquidators undertook were commensurate with that need”.

ASIC sees liquidators as its front-line investigators when a company goes into insolvency.  The alternative might be for ASIC to undertake the investigation work.  How much ASIC would charge and on what basis is unknown. ASIC is a corporate Commonwealth entity under the Public Governance, Performance and Accountability Act 2013 (PGPA Act), which primarily governs ASIC’s use and management of public resources. As with insolvency practitioners, ASIC would have an obligation to act by means that are efficient, effective, economical and ethical.  


# “… where creditors engage with liquidators and require them to expend time and effort in responding, that is time which liquidators cannot spend elsewhere and which draws them away from what might be other remunerative work. Investigations of potential causes of action, preparatory to prosecuting them will often be unproductive; but that does not mean that they are not to be remunerated”.

That time and effort in responding is now potentially greater under the ILRA 2016 – see for example, s 70-40 – Right of creditors to request information ….


# “It is inevitable that the appointment of a replacement liquidator will incur some additional costs … “.

This is something ASIC should bear in mind when suspending a liquidator for a short period.  It will involve cost and disruption to the creditors.  That cost and disruption is now potentially greater under the ILRA 2016 – see for example s 40-25 – ASIC may suspend registration.  ASIC needs to have regard to its obligations under the PGPA Act. 

Also, no liquidator can be legally required to take on the estates for that period, once the official liquidator status is repealed.


 # ” … just because [liquidators] have not added value does not mean they should not be remunerated for it, but they cannot expect the same reward as would be appropriate for value-generating work. Their standard hourly rates applied to time spent must be moderated, having regard to the limited assets available in their administration, the stage at which they took conduct of the administration, and the results – or lack of results – they have produced. … it would be different if their investigations produced a further levy and recoveries, or if they had taken a less cautious and higher risk approach which would have attracted a premium for risk and results”.

It depends on what is meant by “value-generating work”. Work done in administering an insolvency can involve more than generating commercial returns for creditors, if for example, an investigation into misconduct is required.


# “To what extent the liquidators’ rates and remuneration should be moderated does not admit of mathematical exposition or justification, any more than does the fact that they set their own hourly rates. The Court has a very wide discretion”. 

This legal perspective does not address the business or economic perspective of operating an insolvency practice. It is not properly an area for the uninformed exercise of judicial discretion. In any event, the reasonable costs of running a practice are a relevant factor in determining remuneration.


# “the Court is not obliged to make specific positive findings about the work necessary and appropriate to be done, the appropriate level of seniority and whether the work was done efficiently. The Court is entitled to take the practical course of looking at the matter more generally in assessing reasonableness and then applying, if thought necessary, any appropriate discounts.

Or premiums.


# some work may be sufficiently complex and labour intensive such as to justify a high cost to benefit ratio.

# it is neither sensible nor cost effective for the Court to proceed by some line by line analysis; rather, it should take a broad approach and appropriately discount, without making any specific findings. A judge should not apply an overall discount without identifying the effect that specific issues had on the overall outcome.

# an amalgam of the factors in s 425(8)(d), (e), (g) and (h) have as their unifying theme the concept of proportionality.

Yes. See now the Schedules under the ILRA 2016 – s 60-12. Note however that the creditors need not take these criteria into account.


# the question of proportionality in terms of the work done as compared with the size of the property or activity the subject of the insolvency administration or the benefit or gain to be obtained from the work is an important consideration in determining overall reasonableness.

The “benefit or gain” has to be seen broadly.


# the question of proportionality is an anterior question to consider in order to determine whether time was reasonably spent. If the relevant work plan underpinning the actual time spent and the allocation of personnel at the requisite level of seniority was disproportionate to the nature, importance and complexity of the task and the benefit to be achieved from the task, then it might be said that the time spent on the task was not time reasonably spent.

This assessment might be made in looking back over work done, and at the point in time the remuneration claim is being prepared. 


# in looking at proportionality, the value of the services rendered must be considered – as for lawyers, the time spent by an appropriately qualified and experienced practitioner in drafting a statement of claim should be proportionate to the amount in issue.

This focuses only on the monetary.  Sometimes claims are brought in the public interest, where the conduct is egregious, but the monetary amount is small or less relevant. And preparing a statement of claim for $100,000 may involve the same legal complexity as one for $10 million.


# the proportionality analysis requires a comparison of “like with like”.

# it should be borne in mind that in performing some work, it may not be entirely clear ahead of time what the precise benefit of the work might be so that it might be inappropriate to use a hindsight analysis of known returns after the event to assess whether the work was proportional to the task and in such a situation one would look at the expected realistic return at the time the work was performed rather than actual outcomes.

This is important.  Much work in insolvency involves digging around without knowing what will be found.  It is a legal and commercial decision of the liquidator, sometimes based on legal advice, and with creditors’ views often sought. While creditors can direct the liquidator what to do, it remains the liquidator’s decision: Corporations Schedule s 85-5.


# if a judge or assessor is to say that the time spent was “too high”, there should be evidence of another more efficient process that would have reduced the time taken.

# a discount applied by a practitioner to take into account proportionality is to be regarded as a discount from their true claim and not from a theoretical or ambit claim.

# if the work was rendered necessary by the Court’s orders, and there is no basis to conclude that an excessive time was taken to do it, then there is not a principled reason for concluding that the claimed remuneration for the work is unreasonable”.

# work done in complying with subpoenas is chargeable, even if no costs order is sought for good reason.

# a hot-line for callers is used in most large corporate collapses and, as a matter of public policy, it should not be discouraged and is chargeable.

# extensive legal research by lawyers can be needed and should be paid as appropriate.

# complex tax advice may need to be paid at higher charge out rates than for other legal work performed, with the value often potentially high. 


Much of this may change under the ILRA 2016.  Further explanation of these changes will be made.  There will also be an analysis of where the lawyers’ fees fit in.

And while case law and other references have not been cited here, they are available on request.

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