Many readers will be aware of the controversial Supreme Court decision in AAA Financial (No. 2), which gained the profession’s attention as a result of the court’s adverse comments about time-based charging by insolvency practitioners.

AAA was followed soon after by two more remuneration decisions from the same court – On Q and Hellion.

• In On Q, the court ordered the insolvency practitioner to inform creditors that they might get more money if they applied to have the liquidators’ remuneration reviewed.
• In Hellion, the court referred to cases “which had commented, in the liquidation context, that 5 percent on realisations and 5 percent on distribution was a very high allowance”.

In short, in the space of a couple of months, the NSW Supreme Court delivered three decisions on insolvency practitioners’ remuneration, none of them entailing terribly good news for liquidators.

Fortunately, it is not all doom and gloom. There have been, in recent months, three somewhat more heart-warming remuneration decisions – Hunter, PNP and Gunns – which show us that:

• the NSW Supreme Court will endorse time-based remuneration in the right circumstances;
• Victorians also have a “proportionality” test, but it’s not as restrictive; and
• Western Australia has a magnificently pragmatic approach to remuneration approval.

 

Re Hunter Rural Division of General Practice Limited

In Re Hunter Rural Division of General Practice Limited [2015] NSWSC 279, two liquidators came before the NSW Supreme Court to have their remuneration fixed.

This would ordinarily be a fairly nerve-wracking affair, given that the presiding judge was the same judge who decided AAA, On Q and Hellion.

However, in this case, the liquidation boasted receipts of $2.2M, and the liquidators were only after about $100K.

This factor made all the difference. Proportionality was not a problem, given the huge surplus. The court crunched the numbers and quickly concluded:

I have, on a number of occasions in recent times, expressed views about the amount of liquidators’ remuneration. In this case, however, the total amount claimed, if the amount presently sought is approved, will be a little in excess of $100,000, which represents less than 5% of realisations in the liquidation, and it seems to me entirely appropriate. Accordingly, I propose to make orders approving and fixing the remuneration without further ado.

The message from the NSW Supreme Court therefore appears to be that, if there is plenty of money in the job, time-based costing is fine. Conversely, if there is not plenty of money in the job, time-based costing will not be fine, because it will exhaust an inappropriately high proportion of available funds.

A natural (and, for the profession, unwelcome) corollary of this is that, where there are insufficient funds in a job, liquidators should consider settling for a percentage of realisations, even if they spent considerable time and resources in the pursuit of those realisations.

 

Re Gunns Plantations Limited

Re Gunns Plantations Limited [2015] VSC 102 concerned an application by the liquidators of the Gunns group of companies for, among other things, the approval of their remuneration.

The case is notable for the approach taken by the Victorian Supreme Court to the question of proportionality. Put simply, the Victorian Supreme Court did not say remuneration must be in proportion to realisations, it said remuneration must be proportionate to the services undertaken.

As a temper on potential abuse of this principle, the court reminded liquidators of their duty to exercise proper commercial judgment in deciding what work to undertake.

Paragraphs 61 to 67 are interesting reading, as are paragraphs 80 to 84. The court said, in essence, that the fees claimed were fine because the liquidators had exercised commercial judgment in relation to the work that was done, and “the cost attaching to that work [and] the amounts claimed appear, on their face, to be proportionate to the value of the services provided by the liquidators given the size, importance and complexity of the task performed”.

 

Re PNP Pacific Pty Limited

In Re PNP Pacific Pty Limited [2015] WASC 49, Master Sanderson (WA Supreme Court) said something interesting.

Confronted with an application for the approval of remuneration, he commenced his decision in a fairly orthodox way by referring to authority and summarising the two-stage process to assess such claims:

Stage 1:       First, the liquidator presents prima facie evidence of his entitlement to be paid, in the form of an itemised summary of the work done and a description of the qualifications and seniority of the people who did it.

Stage 2:       Next, creditors get a chance to object and, if they do, their objections are heard, the liquidator is given a chance to respond, and the court makes a decision.

So much was uncontroversial. What was interesting is that, after summarising the two-stage process, Master Sanderson expressed frustration with the notion that a judicial officer should be expected to second-guess a liquidator’s WIP report without the assistance of a contradictor, describing it bluntly as “a waste of time” and saying (emphasis added):

As with every single case I have looked at over the past almost 17 years since Venetian [Venetian Pty Ltd v Conlan (1998) 20 WAR 96] was decided, I was satisfied, prima facie, the charges claimed were justified. It is difficult to see how in any circumstance a different conclusion can ever be reached. All a liquidator can ever do is set out in broad detail what was done in the course of the liquidation and the hourly rate charged. There is no way I could, by looking at the broad description of the work done by [the liquidator] and his hourly rate, assess whether or not the charge is reasonable. Really, the first stage of this two-stage process is a waste of time. Of course, if it were the case the material before the court was manifestly inadequate because there were no timesheets, the hourly rate was not specified, or the individuals who did the work were not identified, then the claim would fail. But that is a wholly different thing from requiring a preliminary assessment of the entitlement to remuneration.

So there you have a markedly different approach to that favoured by the NSW Supreme Court. In Western Australia, seemingly, if the liquidator presents satisfactory timesheets and no objection is made, the court generally finds itself “satisfied, prima facie, [that] the charges claimed were justified”.