A recent decision in the New South Wales Court of Appeal, Sanderson as liquidator of SAKR Nominees Pty Ltd (in liquidation) v SAKR  NSWCA 38 (Sakr), has settled an uncertain position with respect to the remuneration of liquidators, particularly in low asset value liquidations.
SAKR Nominees Pty Ptd (Company) was wound up on 3 September 2012 and a liquidator was subsequently appointed. The Company was a small family company, with the only significant asset being real property, realised by the liquidator for $3.72 million.
The creditors of the Company had previously approved the liquidator’s fees for the period up to 3 November 2014. Both the secured and unsecured creditors were subsequently paid out, leaving a surplus to be distributed among numerous contributories. At this point, additional work was undertaken by the liquidator to ascertain the identities of these contributories, which was considered essential given an attempt to exclude certain parties from the distribution.
As the creditors had been paid out, approval of further fees via resolution of the creditors or a committee of inspection was not possible. Thus, the liquidator sought an order for the determination of fees for work undertaken and further work required subsequent to the approval previously given by the creditors. Remuneration of a liquidator may be determined by the Court under s 473(3)(b)(ii) of the Corporations Act 2001 (Cth) (Act), where the above options are unavailable.
Findings of the Primary Judge
The primary judge, Brereton J, found that liquidators would not necessarily be allowed remuneration at their firm’s hourly rate. His Honour’s comment was largely aimed towards smaller liquidations, suggesting that liquidators cannot expect to be rewarded for their time in the same manner as would be permissible where substantially more assets were available. In stating that ad valorem remuneration may be the preferable method in smaller liquidations, the judge highlighted issues of proportionality, value and risk associated with low asset value, primary factors to be considered when making an order for remuneration.
The total remuneration claimed by the liquidator was $63,577.80. On consideration, His Honour ordered that an amount of $20,000 be payable for the additional work undertaken by the liquidator. Curiously, substantive explanation as to how he arrived at this amount was not given.
The liquidator sought leave to appeal the order by the primary judge.
Sakr is not the first occurrence of Brereton J’s partiality towards a limitation of remuneration in smaller liquidations. In delivering his conclusion, the judge cited several of his prior judgments approving his stance on limitation. In Re AAA Financial Intelligence Ltd (in liq) (No 2) ACN 093 616 445  NSWSC 1270, Brereton J argued that it was erroneous to calculate reasonable remuneration by reference only to time reasonably spent at standard rates, and to do so meant to disregard considerations of proportionality. In considering the importance of proportionality, he proposed that while ad valorem remuneration was not without its shortcomings, it showed promise when applied to smaller liquidations.
Brereton J’s tendency to award remuneration to liquidators via an ad valorem basis was examined and tentatively encouraged by Robb J in David Lewis Clout in his capacity as Liquidator of Mainz Developments Pty Ltd (in liquidation)  NSWSC 1146. While he noted that an appearance of inconsistency may exude if the courts had acted on the basis of proportion alone, he dismissed such a view as ‘illusory, and ignores the role played by the percentages adopted in the entire process.’
In a unanimous judgment delivered by Bathurst CJ, the Court found that in determining reasonable remuneration, the Courts must have regard to any or all of the matters referred to in s 473(10) of the Act.
The section provides:
In exercising its powers under subsection (3), (5) or (6), the Court must have regard to whether the remuneration is reasonable, taking into account any or all of the following matters:
(a) The extent to which the work performed by the liquidator was reasonably necessary;
(b) The extent to which the work likely to be performed by the liquidator is likely to be reasonably necessary;
(c) The period during which the work was, or is likely to be, performed by the liquidator;
(d) The quality of the work performed, or likely to be performed, by the liquidator;
(e) The complexity (or otherwise) of the work performed, or likely to be performed, by the liquidator;
(f) The extent (if any) to which the liquidator was, or likely to be, required to deal with extraordinary issues;
(g) The extent (if any) to which the liquidator was, or is likely to be, required to accept a higher level of risk or responsibility than is usually the case;
(h) The value and nature of any property dealt with, or likely to be dealt with, by the liquidator;
(i) Whether the liquidator was, or is likely to be, required to deal with:
i. One or more receivers; or
ii. One or more receivers and managers;
(j) The number, attributes and behaviour, or the likely number, attributes and behaviour, of the company’s creditors;
(k) If the remuneration is ascertained, in whole or in part, on a time basis:
i. The time properly taken, or likely to be properly taken, by the liquidator in performing the work; and
ii. Whether the total remuneration payable to the liquidator is capped;
(l) Any other relevant matters.
The Court’s view was that the determination of remuneration was not ‘a decision involving the application of a vague general standard’, but was rather the application of a legal norm of reasonableness and in turn, the identification and evaluation of all relevant facts. Where the situation is such that reasonable minds may differ, the Court specified that there must be an error of law or fact in order to successfully bring an appeal.
It was acknowledged that s 473 does not provide for any particular method when calculating a liquidator’s remuneration. Instead, the Court observed that it has wide discretion in the identification of the method ultimately undertaken. This allows complete entitlement to calculate remuneration on a basis considered appropriate by the Court, given the circumstances of each individual case. This discretion, however, must be excised having regard to the applicable factors established in s 473(10), and must not be fixed on an ad valorem basis by simply applying a blanket percentage to particular classes of liquidation. To ignore s 473(10), the Court warned, would constitute an error of law.
The Court agreed with the primary judge in that the concept of proportionality is of the utmost importance when calculating liquidator remuneration, noting that it holds well grounded roots within the concept of reasonableness and is consequently the unifying theme of many factors in s 473(10).
However, the Court nevertheless found that the primary judge had erred in his determination of reasonable remuneration by failing to take into account evidence provided by the liquidator and of the factors established under s 473(10) of the Act. In focussing exclusively on proportionality between the work performed and the size of the property the subject of the administration, the primary judge failed to consider other relevant factors including the work actually completed by the liquidator and the complexity of the tasks performed. Additionally, Barrett AJA noted that as a general proposition, any given basis – whether according to time, value, size of company or any other factor – cannot warrant any claim to precedence over any other in a determination of remuneration.
Perhaps most importantly, the Court also took care to emphasize that the stance taken by the legislation did not mandate a separate approach to reasonable remuneration in smaller liquidations. While still relevant in determining remuneration, the Court established that each case be deliberated both on its merits and with careful consideration of the relevant legislative factors.
The Way Forward
In the years preceding the Sakr case, a liquidator’s expectations regarding reasonable remuneration, particularly in liquidations with smaller asset values, was fraught with uncertainty. The tendency for remuneration to be determined based on certain factors (while disregarding others) and a judge’s own take of the legislation is now in the past. The decision in Sakr has, at the very least, opened the door to an even playing field where liquidators will get the amount to which they are entitled, regardless of the size or complexity of the liquidation.