By Doran Cook and Monique Cowden -
Snapshot
- In the highly-anticipated decision of Sanderson as Liquidator of Sakr Nominees Pty Limited (in liquidation) v Sakr [2017] NSWCA 38, the Full Bench of the NSW Court of Appeal provided clear guidance on how a Court must determine a liquidator’s remuneration under the Corporations Act.
- A liquidator’s remuneration must be ‘reasonable’, taking into account all relevant factors in s 473(10) of the Corporations Act. Subject to these matters being satisfied, a Court is entitled to determine a liquidator’s remuneration by reference to time-based or ad valorem remuneration.
- Proportionality is a well-recognised aspect in determining reasonableness, and is a ‘unifying theme’ of various factors in s 473(10) of the Act.
In the highly-anticipated decision of Sanderson as Liquidator of Sakr Nominees Pty Limited (in liquidation) v Sakr [2017] NSWCA 38 (‘Sakr’), the Full Bench of the NSW Court of Appeal unanimously upheld the appeal In the matter of Sakr Nominees Pty Ltd [2016] NSWSC 709, and, in so doing, provided clear guidance on how a Court must determine a liquidator’s remuneration under the Corporations Act 2001 (Cth) (‘Act’).
Time-based vs ad valorem remuneration
Courts are frequently asked to determine or review a liquidator’s remuneration. When doing so, a Court is required to exercise its powers with regard to whether the remuneration is reasonable (s 473(10) of the Act).
Generally, the basis upon which liquidators have sought to have their remuneration assessed is by reference to time spent on tasks and the rates charges for that time (‘time-based remuneration’). However, there has been a growing judicial trend to approach the task of determining the reasonableness of a liquidator’s remuneration by reference to the value of those services to the administration, rather than the time spent performing the work (‘ad valorem remuneration’).
In a series of recent decisions by Brereton J, his Honour has held that liquidators should not necessarily be allowed remuneration at their firm’s standard hourly rates for time spent – particularly in smaller liquidations where questions of proportionality, value and risk loom large (for example, In the matter of AAA Financial Intelligence Ltd (in liq) (No 2) [2014] NSWSC 1270; In the matter of Hellion Protection Pty Ltd (In Liquidation) [2014] NSWSC 1299; In the matter of Gramarkerr Pty Limited (No 2) [2014] NSWSC 1405). His Honour has instead approved remuneration on an ad valorem basis.
Whilst ad valorem remuneration is not a new concept (see Re Carlton Ltd (1923) 39 TLR 194), its re-emergence in the decisions of Brereton J created more than a little disquiet amongst insolvency practitioners, who have been particularly concerned that they would not be adequately remunerated in smaller and/or particularly complex liquidations, where the cost of the work undertaken by them may not be reflected in an order for ad valorem remuneration.
