Michael.1
Insolvency and related law and policy, and more

Michael Murray is an Australian author and commentator on corporate and personal insolvency law and related issues, in Australia and internationally. He has a strong law and policy background, is independent of any connections, and his views are his own. He gives no legal advice. 

Liquidators’ remuneration in Halifax referred to a referee

Going back some years, Australia rejected a single insolvency regulator for its personal insolvency practitioners on the one hand, and its corporate insolvency practitioners on the other;[1] 90% of whom are registered as both.  Separate regulation was maintained and continues.

Even when major harmonising reforms were enacted in 2016, that decision was not revisited. Each of personal and corporate insolvency went its own way in several areas.

One factor in particular dictated this – the nature and capacities of the respective regulators.  AFSA comprises the Official Trustee, which administers 85% of Australia’s bankruptcies, as well as a regulatory arm.  ASIC is Australia’s corporate regulator, of which insolvency regulation is only a bit part; it has no ‘liquidator’ role comparable with bankruptcy.

Remuneration

Practitioner’s remuneration is one area where the capacities of the regulators have dictated the handling of remuneration assessments.

Just as the regulators and the courts say that insolvency work should be handled at an appropriate level of expertise and cost according to its level of complexity, and proportionately so, so too should determination of insolvency practitioners’ remuneration. It should therefore not require attention at the judicial level unless major disputes or issues of principle arise; and it should be done by those familiar with the process.

AFSA and ASIC

Hence, in personal insolvency, the determining of bankruptcy trustees’ remuneration is given to its regulator, AFSA and this was reinforced in the 2016 reforms.[2] AFSA has a number of policy documents relevant to trustee remuneration and how it is to be assessed.  It has also produced a recent report on various issues arising.

But in corporate insolvency, those 2016 reforms left the default task of fixing liquidators’ remuneration with the courts; it was not given to ASIC.[3]

Halifax

The lack of a regulator role in corporate insolvency is evident in numerous decisions of the federal and state courts. The latest decision in Halifax, where the committee of inspection (COI) did not approve the liquidators’ remuneration, is another.[4]  Under the law introduced by the ILRA, the court remains the ultimate decider.

A “practical problem” in Halifax was how the liquidators’ remuneration could be determined “reasonably promptly by the Court, having regard to the competing demands on Court resources”. Various options under the Act were proposed and rejected.

The Court had earlier fixed the remuneration of the liquidators as administrators of Halifax AU in the amount of over $1.7m and another amount of $1.1m.[5]

The evidence was that the liquidators’ remuneration in relation to HalifaxAU from May 2020 would be around AUD2-350,000/month; with legal fees approximately AUD3-500,000/month and counsels’ fees around approximately AUD150-400,000/month.

The difficulty encountered was that the committee of inspection (COI) initially avoided assessing the remuneration, but at a subsequent meeting on 25 March 2020, the COI approved it.

“Three of the eight members of the COI did not access the remuneration report prepared by the liquidators and shared with the COI prior to their February and March 2020 meetings”.

The liquidators wanted the Court to devise a better way of having their remuneration approved. They noted that the

“process of presenting remuneration to the COI had proven to be costly and resource-intensive. [They] estimated that the cost of the March 2020 COI meeting, which would been unnecessary apart from the failure of the non-objection resolutions to pass at the February 2020 meeting, at AUD13,000”.

The liquidators therefore sought orders the ‘remuneration method order’, that an independent third party should review the reasonableness of the liquidators’ remuneration.

The Judge took a lateral position and appointed a referee from the Court to undertake the task pursuant to s 54A of the Federal Court of Australia Act 1976 (Cth), as to the reasonableness of the remuneration claims in different time periods according to the law, with a report to be made back to the Court for its decision. For each question, the liquidators were to submit to the referee a remuneration report and a work in progress spreadsheet. The referee is then to give to the Court a report under r 28.66 of the Federal Court Rules, with a copy to the liquidators, within 21 days, or such further time as the Court allows.

That may be one way around addressing the retention of the need for the court to assess practitioners’ bills.

In Use of referees in insolvency litigation I refer to Justice Michael Lee’s encouragement to use referees in insolvency matters, but I also say that removing many matters handled by insolvency practitioners from the need for judicial scrutiny might be a better option – liquidator remuneration being one.

AFSA again, no reasons issued

While an informed regulator or external process might be better, such as that of AFSA, courts do give reasons for their remuneration decisions which have informed the law and practice.  AFSA does not publish its reasons, or only on an ad hoc basis, which avoids external scrutiny and does not allow the legal and practice issues to be developed and understood. Trustees whose remuneration is reviewed can publish their AFSA decision; and there is a right to reasons and of judicial review of AFSA’s decisions under the Administrative Decisions (Judicial Review) Act 1977. Neither is an answer.

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[1] Senate Committee Report, 2010.

[2] See Insolvency Practice Schedule (Bankruptcy) s 60-11.

[3] See IPSC s 60-10(1)(c), s 60-12.

[4] Kelly, in the matter of Halifax Investment Services Pty Ltd (in liq) (No 9) [2020] FCA 925.

[5] No 6 [2019] FCA 2111

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