Major victory for reasonable and proper liquidator remuneration

Yesterday the NSW Supreme Court handed down a decisive and eloquent judgment on the remuneration of registered liquidators in the matter of Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr [2017] NSWCA 38.

The appeal was heard before a full bench, led by Chief Justice Bathurst, on Wednesday 23 November 2016 with ARITA appearing as amicus on behalf of the profession.

Basis for remuneration

The unanimous (5-0) decision confirmed that an ad valorem basis of fixing liquidator remuneration by simply applying a percentage rate without regard to the actual work which was required in the liquidation is inappropriate.

In the conclusion of the judgement, Barrett AJA stated: ‘… it is, in my view, impossible to say, as a general proposition, that any given basis – whether according to time, value, extent of recoveries, size of company, nature of company or any other factor – merits any claim to precedence over any other in the matter of determination of liquidators’ remuneration.’

This represents a significant shift from recent decisions by Brereton J in the NSW Supreme Court.

ARITA believes this is an important milestone in ensuring that determination of a practitioner’s remuneration take account of all relevant considerations, not simply the size of any remnant assets in an administration, and not merely with perfect hindsight.

The judgment makes extensive reference to the submissions of both ARITA and ASIC, and makes for important reading for all insolvency professionals. I urge you to read it in its entirety, taking note of the guidance that now comes from the Idylic Solutions decision which is referenced in the determination (and which we have previously reported to members).

Background to the case

ARITA members would be well aware of the concerning precedents in NSW where a number of practitioners have had their remuneration retrospectively cut and an arbitrary percentage fee applied by the court.

In each of those cases there was no accompanying finding that the work done by those practitioners had not been ‘necessary work, properly performed’. ARITA strongly believes that practitioners have a right to reasonable and reasonably guaranteed remuneration for necessary work, properly performed.

ARITA as amicus curiae

ARITA’s appearance as amicus curiae was solely based on issues of wider concern to the profession, and came after ARITA considered the submission ASIC made in the case.

The substance of ASIC’s submission was of the gravest concern to ARITA. As a result, ARITA’s Board agreed to commit substantial resources – over $150,000 – to this case including retaining the President of the NSW Bar Association, Noel Hutley SC as our senior counsel. ARITA member and INSOL Fellow, Scott Aspinall was retained as junior counsel. Henry Davis York advised the ARITA Board and were instructing. ARITA’s Specialist team supported the process.

ARITA’s Board strongly believed that making such a significant financial and resource commitment was essential in defending the erosion of a liquidator’s right to reasonably necessary and proper remuneration.

We acknowledge the commitment of the liquidator, Cliff Sanderson, to stay the course through this challenge on such a matter of principle.

A worthwhile investment

It was an almost unprecedented decision for ARITA to commit such resources to a case, which involved significant risk given the financial cost of the undertaking.

However, we had been keeping a close eye on the decisions that had been favouring a retrospective percentage approach to remuneration, and – especially after reviewing the submission made by ASIC in the appeal – formed the view that the cost to the profession of not intervening was too high for us not to be involved.

We hope that this decision provides clarity and stability for our members and other practitioners so that they can continue to undertake their important work.