The decision in Sakr Nominees – keeping it in proportion

The NSW Court of Appeal has disposed of authority that sought to apply percentage based calculations to liquidators’ remuneration in particular cases. The Court has restored the orthodox position and confirmed existing principles on other aspects of remuneration: Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr [2017] NSWCA 38. 

These accord with principles stated in many bases, including in bankruptcy, by Justice Black in Primespace Property Investment [2016] NSWSC 1821 and other cases, including Cardinal Group Pty Ltd [2015] NSWSC 1761, Pegulan Floor Coverings v Carter [1997] SASC 6299, and Boensch v Pascoe [2007] FCA 1977.

While many commentators are already writing about what they see as the importance and consequence of this decision, some other perspectives are offered that keep its relevance in proportion.

  • We have to remember that the court only has a default role in determining remuneration, when other means are not possible. Only then do the factors in s 473(10) come into play. In determining remuneration, creditors are not bound by those factors. Percentage based remuneration without regard to the particular work required is a common approach in many fields, and it is an option for creditors to choose in an insolvency.
  • If, as the Court of Appeal says, a court decides that percentage based remuneration should have been used, instead of time based, or vice versa, one would like to think that the court would have regard to the threshold point that it was overturning a commercially based decision of the liquidator made in good faith and often with the support of creditors. Hindsight assessment of how the remuneration should have been charged might be unfair.
  • The Court of Appeal said that the

    “work done must be proportionate to the difficulty and importance of the task in the context in which it needs to be performed. This is what is encompassed in assessing the value of the services rendered.” 

    But the concept of value, or “benefit”, in insolvency is problematic. The value is that an estate was administered properly according to law and practice, and efficiently and effectively. Whether that provides monetary value to creditors – a dividend, is not to the point.  Insolvency accepts that creditors may not receive anything, but other purposes are met by the administration of the insolvency.

  • To say, as the Court of Appeal does, that a percentage based amount that varies from the time based amount would

    “identify those cases in which there ought to be a real concern”,

    puts the issue too strongly.  In many an administration, remuneration might consume 100% of the estate, given its small or assetless nature.   

  • While the law does not mandate a separate approach for smaller liquidations, the reality is that smaller administrations are conducted at a low set fee rate.  This includes those companies wound up by ASIC under s 489EA.
  • There is also the fact that the costs of going to court can be prohibitive.  While no liquidator should pay what was incurred by parties in this appeal, there is no commercial point in going to court for $15,000. Where court applications for approval are pursued, the costs of preparing the evidence, and lawyers’ fees can exceed $50,000.
  • The Court recorded that ARITA picked up my point about Marlborough Gold, and what I see as the destructive impact on the administration of a national scheme when judges go their own way.  The Court did not choose to delve into that but it remains an issue of judicial compliance to monitor.
  • ARITA also properly submitted that a percentage approach cannot be justified on the basis that what a liquidator loses in remuneration on a complex liquidation can be recouped from another simple one, the “swings and roundabouts” approach: Re Greater West Insurance Brokers [2001] NSWSC 825.

The ILRA 2016

Unfortunately, Sakr Nominees was determined under the existing soon-to-be-old-law.  The question arises whether the new regime will change things.

  • The same 473(10) factors appear in s 60-12 of the Corporations Schedule, when remuneration is determined or reviewed by a court, and now in bankruptcy, where the Inspector-General performs quasi-judicial functions in determining trustees’ remuneration. In other respects, for example in a remuneration review by a reviewing liquidator, they do not apply, as a matter of law.   
  • What may change is the work necessary under the new law.  Remuneration is necessarily attached to work required to be done.  There is now the potential for more creditor queries and interventions, including by committees, and more reporting, and ASIC and Commonwealth agencies interventions in meetings.  The courts have more intervention powers. All this may add to what is reasonable work to be remunerated. 
  • And while the Court of Appeal was dismissive of universal percentage based remuneration, the new law confirms its use, at a high rate, allowing remuneration up to $150,000 on the sale of $1m in assets: Bankruptcy Rules, s 60-20; Schedule 60-12(3). Perhaps by oversight, this is not an option in corporate insolvency, to be remedied.


The Court of Appeal did not find it necessary to refer to the role of lawyers in the process, who would be involved in advising a liquidator on taking proceedings and whether the cost and time involved would be proportionate. While the legal advice might be that the claim is good, the advice might also say that its outcome would be disproportionate to the effort. Lawyers also have their proportionality obligations under s 37M of the Federal Court of Australia Act, (and similar state laws), the Civil Disputes Resolution Act, and under the Legal Profession Uniform Law.

In Sakr, in what was a test case on proportionality, the parties stuck to the traditional counsel-lawyer structure rather than, for example, direct briefing. The assembling of a five-member bench may have prompted that. Worthy pro bono assistance was provided; as a model litigant, ASIC’s counsel’s fees would have been limited (generally $2,300-3,500, with hourly rates one‑sixth of the daily rate).  ARITA says it paid over $150,000.   

What next?

The decision restates useful matters of principle for further cases. 

But the particular matter in Sakr has been referred to a judge for rehearing. That judge must apply the reasoning of the Court of Appeal. A similar outcome ensued from Templeton v ASIC. Overall, the facts to deal with are that the liquidator realised three properties for $3.72 million, paid some $2 million to secured creditors and around $904,000 to unsecured creditors, leaving a surplus of $517,830. The creditors had approved the liquidator’s fees to $197,000, but $63,580 remained.  All up $260,000. The new Judge could revisit the $197,000, as well as determine whether the $63,580 is reasonable.  We await their decision.


As I have said, there are bigger issues involved

Remuneration is only the end result of work done, and the source of that remuneration, absent in assetless administrations, is an issue.  The ability to decline such appointments, with the official liquidator obligations repealed, may assist.  

And while we know from AFSA statistics how much remuneration is charged by registered trustees in proportion to assets realised and dividends paid, we have little or no idea in corporate insolvency.  ASIC statistics are not adequate.  Maybe corporate insolvency remuneration is comparatively cheap?  

The new English rules, commencing on 6 April 2017, provide more flexibility between percentage and time based charged, which we should consider. Singapore is also reviewing its processes.  New Zealand and English law appear to work well: see Simion v Brown [2007] BPIR 412 (ChD); Brook v Reid [2011] EWCA Civ 331, both discussed at Insolvency case reports, proportionality – 2015(4) ARITA J 53-54; and Five Star Finance [2015] NZHC 142, explained in (2015)(2) ARITA J 49-50.

There are also many areas of the liquidator’s role where the limits of their responsibility are unclear, in particular the extent required of their investigations.  For example, the recent Melbourne Monash Phoenix Report says that if liquidators are to retain their responsibility for investigating wrongdoing, their investigatory responsibilities should be expressly stated in the Corporations Act, and funding be provided. 

While the Insolvency Law Reform Act gives guidance to trustees in Division 42 of the Schedule, no such guidance is offered liquidators, beyond the uncertain law in s 545 Corporations Act.

To be continued, some time.



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