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Michael Murray’s on-going commentary on issues in corporate and personal insolvency law and related policy and law reform, in Australia and internationally. Given the scope of insolvency, this extends to business, consumer and professional conduct, and ethics, governance and regulation, criminal, tax, environmental and administrative law, and the courts and government.

 

Liquidator’s fees were too low

Adverse findings have been made against a liquidator by a disciplinary committee, one being that he accepted fees that were “significantly below the actual cost” of the liquidations concerned, and, that being the case, he gave less attention to the investigation of those matters than he should have.[1]

That raises an interesting issue about what fees a liquidator should accept before consenting to a court appointment as liquidator on the petition of a creditor; or before consenting to a voluntary appointment at the request of a debtor.

Given that a liquidator is constrained by knowing too much about the matter to which they are asked to consent, it may be incumbent on the creditor, or debtor, to ensure that the fees or indemnity should be calculated to try to ensure that they meet the actual costs of the particular winding up.

To do otherwise would leave the liquidator unfunded and therefore, in relation to the ASIC reporting requirements, to be

“under no obligation to conduct any investigations beyond the bare minimum required for the statutory [s 533] report”.[2]

Privatisation agenda

This finding does however appear to meet the government’s privatisation agenda for corporate insolvency. An intention of the 2016 reforms in removing the public interest role of “official liquidator” was to address concerns about cross-subsidisation then occurring within the insolvency profession whereby liquidators’ unpaid costs incurred in assetless administrations – said to be $47 million per annum – were being recouped through higher remuneration charges against creditors in larger administrations.

As a result of this law change, the government said

“where a person is petitioning the court to wind up a company the person will likely have to provide a guarantee of a minimum amount to the corporate insolvency practitioner in order for the corporate insolvency practitioner to agree to the appointment”.

This was on the basis that liquidators are not be expected to consent to appointments

“without some form of guarantee or where they do not believe they are likely to be remunerated”[3] (fully).

Fewer liquidations

This would mean, the government said, fewer liquidations. Again, this is consistent with the government’s views of the private nature of insolvency that the 2017 reforms would lead to an increase in the number of assetless companies not going through the liquidation, and investigation, process.

What to pay?

It seems that if the fee arrangement proposed for winding up a company are significantly or even moderately below the cost involved then liquidators should not take the appointment. On the other hand, in particular government agencies such as the ATO and ASIC, as creditors or otherwise, should ensure the amount of funding provided for a liquidation is enough to pay liquidators for the proper performance of their duties.

The Committee’s reasons

There are other aspects of this interesting Committee decision that bear comment – shortly.

================

[1] Report of the Committee and reasons for decision concerning Mitchell Ball, 25 November 2019.

[2] Insolvency – It’s all About the Money [2018] 46(2) Federal Law Review 287, Helen Anderson

[3] Explanatory Memorandum, Insolvency Law Reform Bill 2015, [9.137]

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One Response

  1. It begs the question “when will the ATO fund liquidators and Trustees it appoints”? It seems the disciplinary committee and the rest of Australia are not on the same page by a book or two.

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