The recent decision of Justice Black in PrimeSpace Property [2016] NSWSC 1821 (15 December 2016) might be seen by some as a worthy draft of the reserved NSW Court of Appeal decision in Sakr Nominees, the subject of my earlier comments. Justice Black examines the various approaches taken to remuneration in the different cases, including the decision of Brereton J in Sakr, in coming to a determination of administrators’ remuneration. He rejected the discount offered by the administrators and approved the remuneration in full. Issues of risk came down in favour of the administrators.
Justice Black refers to the fact that
“most decisions in both State Supreme Courts and in the Federal Court of Australia have applied time costing as at least the starting point for a calculation of remuneration, although those decisions also emphasise the need for proportionality between the cost of the work done and the value of the services provided”,
referring to Venetian Nominees (WASC), Templeton v ASIC (FCAFC), and Warner, Re GTL Tradeup (FCA).
Black J said that several recent decisions of the NSW Supreme Court
“have emphasised the significance of the percentage that a liquidator’s remuneration bears to the level of asset realisations achieved, and applied percentages of recoveries where time-based calculations would have led to unreasonable results”,
referring to AAA Financial Intelligence, Hellion Protection, Gramarkerr Pty Ltd (No 2), Independent Contractor Services (No 2), and Sakr Nominees, which, as he says, is on appeal. All of those decisions are of Justice Brereton.
Other options are to use percentage of realisations as a test of whether time costing is reasonable: Re Clout as liquidator of Mainz Developments Pty Ltd; Re Idylic Solutions (both NSWSC).
Risk
Two particular points from the judgment are mentioned.
First, Black J did not accept that the engagement of lawyers by the administrators somehow lessened or transferred their “risk”, such as to reduce their remuneration claim:
It seems to me that, within a complex administration and liquidation, involving numerous legal issues which have been reflected in several applications to the Court, the retainer of legal representation by the administrators and liquidators was prudent and, indeed, essential. It does not seem to me that it involves a substantial transfer of risk away from the liquidators, by contrast with the somewhat simpler position if, for example, a liquidator contracted out particular work to a subcontractor. Here, the fact that the administrators and liquidators have obtained legal advice, in respect of complex issues, has not discharged them from the responsibility for the conduct of the administration and the liquidation including, importantly, the responsibility that attaches to the conduct of the administration and liquidation generally and, more narrowly, the provision of instructions to their legal advisers: [39].
Second, and on the other hand, the practitioners assumed, as administrators, a potential personal liability of $5 million under s 443A of the Corporations Act for a period in order to enable completion of a particular project. Justice Black saw that risk as being of “considerable significance” in their favour. A challenge to their claim that other risks undertaken by them as administrators were not as significant as claimed was, the Judge said,
“a proposition which is, of course, very easy to put in hindsight when a risk has not come home”.
English law
Black J notes that the relevant issues were considered by the English Court of Appeal in Brook v Reed [2011] EWCA Civ 331. That decision was usefully applied and discussed in Salliss v Hunt [2014] EWHC 229 (Ch), [2014] 1 WLR 2402.
The English High Court in Sallis referred to a number of guiding principles in the relevant English practice statement.
“The fourth guiding principle (the value of the service rendered) is that the remuneration of an appointee should reflect the value of the service rendered by the appointee, and not simply reimburse the appointee in respect of time expended and cost incurred.
The fifth guiding principle (fair and reasonable) is that the amount of the appointee’s remuneration should represent fair and reasonable remuneration for the work properly undertaken or to be undertaken.
The sixth guiding principle (proportionality) is, so far as relevant to this appeal, that the amount of remuneration should be proportionate to the nature, complexity and extent of the work to be completed or that has been completed by the appointee and the value and nature of the assets and/or potential assets and the liabilities and/or potential liabilities with which the appointee will have to deal or has had to deal”.
None of these is exceptional but we have to acknowledge that the “value” that a liquidator brings in winding up a company should be assessed more broadly than a dividend return.
From a private law perspective, one might only want to see moneys and dividends. From a public law perspective, there is the need to investigate and explain and if necessary hold accountable those under whose control the business collapsed. That also extends to the broader social purpose of insolvency, to impose order and control where there might otherwise be chaos. The economist might also look to the effectiveness of the release of assets back into production under more effective managers, and others to the maintaining of confidence in investment.
There is therefore value in the winding up of a company greater than a dividend return, desirable, although often derisory, as that might be.
As Justice Barrett said in Onefone Australia Pty Ltd v One.Tel Ltd [2010] NSWSC 1120, the debate about needing to show that “benefit” flowed from an insolvency practitioner’s work is
“a sterile one, if the question of “benefit” is approached in some undefined evaluative sense. … The real question is whether the activities for which remuneration is claimed are within the scope of the liquidator’s functions”.
New Zealand
An example is the decision of the New Zealand High Court in Five Star Finance [2015] NZHC 142. The Court was ready to approve over NZ$330,000 in liquidators’ remuneration despite the work done not producing any return for creditors. Their total losses exceeded NZ$43,000,000.
The liquidators “left no stone unturned to pursue possible remedies for the creditors” however they were defeated by the complexity of the corporate dealings, the large scale fraudulent activities of the directors, which effectively put any prospect of recovery “beyond reach of the liquidators notwithstanding their instructing counsel in taking litigation to attempt to enforce recoveries”.
The Court concluded that 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 commiserate with that need”.
To similar effect the Court in Warner, in the matter of GTL Trade-up [2015] FCA 323 said that
“While it is true that it is distasteful to the community and a cause of chagrin to creditors to see that the cost of administering the winding up of a company or trust estate results in little return to the creditors or beneficiaries, there is nonetheless a benefit to creditors and beneficiaries in having their position resolved and to the community of not permitting assets to remain unproductively in the hands of a defunct company for long periods”.
The Judge went on to say that
“without the prospect of reasonable remuneration, it is difficult to see why a liquidator would be willing to take on work which produces those results”.
Quick on Costs
One other item of interest are the latest (December 2016) updates to Quick on Costs, entering the debate on liquidator’s remuneration, and drawing on issues in relation to lawyers’ costs and time based billing.
The eminent author, Roger Quick, suggests there is perhaps an undue adherence to time billing by both insolvency practitioners and their lawyers. He examines the concept of proportionality in detail, beyond the scope of insolvency law, along with the ARITA Code, the new insolvency law reforms, and overseas approaches, among many other issues.
In the end, his view is that there should be
“a greater recognition of concepts and techniques such as Legal Project Management and Alternative Fee Arrangements as tools to check, if not reverse, institutionalised time billing”,
with a number of options being presented.
The UK remuneration reforms 2017
As for these, they must await a further commentary. Suffice to explain that Part 18, Chapter 4 of the Insolvency (England and Wales) Rules 2016, commencing 7 April 2017, contains comprehensive, and novel, rules about remuneration. As a statement of the principles, Rule 18.16 allows practitioners to take remuneration calculated on
(a) as a percentage of the value of the property with which the administrator has to deal, or the assets which are realised, distributed or both realised and distributed; or
(b) by reference to the time properly given by the practitioner and their staff; or
(c) as a set amount.
Stay tuned.
Sakr Nominees – insolvency practitioner remuneration
The recent decision of Justice Black in PrimeSpace Property [2016] NSWSC 1821 (15 December 2016) might be seen by some as a worthy draft of the reserved NSW Court of Appeal decision in Sakr Nominees, the subject of my earlier comments. Justice Black examines the various approaches taken to remuneration in the different cases, including the decision of Brereton J in Sakr, in coming to a determination of administrators’ remuneration. He rejected the discount offered by the administrators and approved the remuneration in full. Issues of risk came down in favour of the administrators.
Justice Black refers to the fact that
referring to Venetian Nominees (WASC), Templeton v ASIC (FCAFC), and Warner, Re GTL Tradeup (FCA).
Black J said that several recent decisions of the NSW Supreme Court
referring to AAA Financial Intelligence, Hellion Protection, Gramarkerr Pty Ltd (No 2), Independent Contractor Services (No 2), and Sakr Nominees, which, as he says, is on appeal. All of those decisions are of Justice Brereton.
Other options are to use percentage of realisations as a test of whether time costing is reasonable: Re Clout as liquidator of Mainz Developments Pty Ltd; Re Idylic Solutions (both NSWSC).
Risk
Two particular points from the judgment are mentioned.
First, Black J did not accept that the engagement of lawyers by the administrators somehow lessened or transferred their “risk”, such as to reduce their remuneration claim:
Second, and on the other hand, the practitioners assumed, as administrators, a potential personal liability of $5 million under s 443A of the Corporations Act for a period in order to enable completion of a particular project. Justice Black saw that risk as being of “considerable significance” in their favour. A challenge to their claim that other risks undertaken by them as administrators were not as significant as claimed was, the Judge said,
English law
Black J notes that the relevant issues were considered by the English Court of Appeal in Brook v Reed [2011] EWCA Civ 331. That decision was usefully applied and discussed in Salliss v Hunt [2014] EWHC 229 (Ch), [2014] 1 WLR 2402.
The English High Court in Sallis referred to a number of guiding principles in the relevant English practice statement.
None of these is exceptional but we have to acknowledge that the “value” that a liquidator brings in winding up a company should be assessed more broadly than a dividend return.
From a private law perspective, one might only want to see moneys and dividends. From a public law perspective, there is the need to investigate and explain and if necessary hold accountable those under whose control the business collapsed. That also extends to the broader social purpose of insolvency, to impose order and control where there might otherwise be chaos. The economist might also look to the effectiveness of the release of assets back into production under more effective managers, and others to the maintaining of confidence in investment.
There is therefore value in the winding up of a company greater than a dividend return, desirable, although often derisory, as that might be.
As Justice Barrett said in Onefone Australia Pty Ltd v One.Tel Ltd [2010] NSWSC 1120, the debate about needing to show that “benefit” flowed from an insolvency practitioner’s work is
New Zealand
An example is the decision of the New Zealand High Court in Five Star Finance [2015] NZHC 142. The Court was ready to approve over NZ$330,000 in liquidators’ remuneration despite the work done not producing any return for creditors. Their total losses exceeded NZ$43,000,000.
The liquidators “left no stone unturned to pursue possible remedies for the creditors” however they were defeated by the complexity of the corporate dealings, the large scale fraudulent activities of the directors, which effectively put any prospect of recovery “beyond reach of the liquidators notwithstanding their instructing counsel in taking litigation to attempt to enforce recoveries”.
The Court concluded that while there was
To similar effect the Court in Warner, in the matter of GTL Trade-up [2015] FCA 323 said that
The Judge went on to say that
Quick on Costs
One other item of interest are the latest (December 2016) updates to Quick on Costs, entering the debate on liquidator’s remuneration, and drawing on issues in relation to lawyers’ costs and time based billing.
The eminent author, Roger Quick, suggests there is perhaps an undue adherence to time billing by both insolvency practitioners and their lawyers. He examines the concept of proportionality in detail, beyond the scope of insolvency law, along with the ARITA Code, the new insolvency law reforms, and overseas approaches, among many other issues.
In the end, his view is that there should be
with a number of options being presented.
The UK remuneration reforms 2017
As for these, they must await a further commentary. Suffice to explain that Part 18, Chapter 4 of the Insolvency (England and Wales) Rules 2016, commencing 7 April 2017, contains comprehensive, and novel, rules about remuneration. As a statement of the principles, Rule 18.16 allows practitioners to take remuneration calculated on
Stay tuned.
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