Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr

Court of Appeal (NSW)|2016-11-23|Before: Bathurst CJ, Beazley P, Gleeson JA, Brereton J

Solicitors: Colin Biggers & Paisley (Applicant) Henry Davis York (ARITA) File Number(s): 2016/84268 Decision under appeal Court or tribunal: Supreme Court Jurisdiction: Equity - Corporations List Citation: [2016] NSWSC 709 Date of Decision: 22 February 2016 Before: Brereton J File Number(s): 2016/40702

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] HEADNOTE [This headnote is not to be read as part of the judgment] The applicant, Mr Clifford Sanderson (the liquidator) sought leave to appeal against an order determining his remuneration under s 473(3)(b)(ii) of the Corporations Act 2001 (Cth) (the Act) as liquidator of Sakr Nominees Pty Ltd (in liq) (the company) in an amount of $20, 000 including GST. The company was wound up on 3 September 2012 and the liquidator was appointed. The company was a 'small family company' and its only significant asset was real property which the liquidator realised for $3.72 million. The creditors of the company approved the liquidator's fees for the period up to 3 November 2014. The liquidator sought, inter alia, the determination of additional fees for further work undertaken since that time and future work that was required to be undertaken. These fees could not be approved by resolution of the creditors or a committee of inspection, because all the creditors had been paid out. The total remuneration claimed, including GST, was $63,577.80. In determining the remuneration at $20,000, the primary judge stated that liquidators would not necessarily be allowed remuneration at their firm's standard hourly rates, particularly in smaller liquidations. He stated that in smaller liquidations, questions of proportionality, value and risk loomed large and that liquidators could not be expected to be rewarded for their time at the same hourly rate as would be justifiable if more property was available. He further stated that ad valorem assessment of remuneration is inherently proportionate and incentivises the creation of value rather than the disproportionate expenditure of time. The issues on appeal were:

Whether the primary judge erred in determining the liquidator's remuneration by: a. failing to take into account the reasonableness of the work performed (or to be performed) by particular persons, how long it took (or would take) to do the work, their hourly rate; the rate charged (or to be charged) and the value of the work; b. misapplying considerations of proportionality; including the determination of the 'value' of liquidator's work; c. applying arbitrary rates of ad valorem remuneration; d. finding that, in smaller liquidations, liquidators cannot expect to be rewarded for their time at the same hourly rate as would be justifiable when more property is available; and e. failing to take into account that from the commencement of the liquidation the creditors had approved remuneration pursuant to s 473(3)(b)(i) of the Act on the basis of time costing. The Court held (Bathurst CJ; Beazley P, Gleeson JA, Barrett and Beach AJJA agreeing), allowing the appeal and remitting the application for remuneration to a judge of the Equity Division for rehearing: (i) The critical question is the determination of reasonable remuneration. Section 473 of the Act does not provide for any particular method of calculation but refers to remuneration by way of percentage or otherwise. If a judge taking into account the evidence of the work done and the matters in s 473(10) came to the view that remuneration calculated by way of a particular proportion of assets recovered or assets distributed was reasonable, he or she would be entitled to fix remuneration on that basis. Similarly if a judge after considering the work done and the relevant factors in s 473(10) concluded that remuneration calculated on a time basis was reasonable, he or she would be entitled to fix remuneration on that basis: [51] (Bathurst CJ); [69] (Beazley P); [70] (Gleeson JA); [71] (Barrett AJA); [72] (Beach AJA). (ii) It is not appropriate to fix remuneration on an ad valorem basis by simply applying a percentage without regard to the particular work required in the liquidation in question. To do so would pay no regard to the requirements of s 473(10), all of which with the possible exception of s 473(10)(l), are directed to the particular liquidation under consideration by the Court: [52] (Bathurst CJ); [69] (Beazley P); [70] (Gleeson JA); [71] (Barrett AJA); [72] (Beach AJA). (iii) The factors in s 473(10)(d)-(e) and (g)-(h) have as their unifying theme the concept of proportionality. The question of proportionality in terms of work done as compared with the size of the property the subject of the insolvency administration is an important consideration in determining reasonableness. The work done must be proportionate to the difficulty and importance of the task in the context in which it needs to be performed. This is what is encompassed in assessing the value of the services rendered: [55] (Bathurst CJ); [69] (Beazley P); [70] (Gleeson JA); [71] (Barrett AJA); [72] (Beach AJA). Templeton v Australian Securities and Investments Commission (2015) FCAFC 137; (2015) 108 ACSR 545; Conlan (as liquidator of Rowena Nominees Pty Ltd) v Adams (2008) 65 ACSR 521; [2008] WASCA 61 applied. (iv) Evidence as to the percentage that remuneration constitutes of realisation will provide a measure of objective testing of the reasonableness of the remuneration claimed and will identify those cases in which there ought be a real concern in that respect: [56] (Bathurst CJ); [69] (Beazley P); [70] (Gleeson JA); [71] (Barrett AJA); [72] (Beach AJA). Idylic Solutions Pty Ltd [2016] NSWSC 1292 applied (v) The mere fact that the work performed does not lead to augmentation of the funds available for distribution does not mean the liquidator is not entitled to be remunerated for it. Provided it was reasonable to carry out the work and the amount charged for it was reasonable, there is no reason a liquidator should not recover remuneration for undertaking the work: [57]-[58] (Bathurst CJ); [69] (Beazley P); [70] (Gleeson JA); [71] (Barrett AJA); [72] (Beach AJA). Warner, Re GTL Tradeup Pty Ltd (in liq) (2015) 104 ACSR 633; [2015] FCA 323; Hall v Poolman (2009) 75 NSWLR 99; [2009] NSWCCA 64 applied. (vi) The statute does not mandate a separate approach for smaller liquidations. However it must be borne in mind that s 473(10)(h) provides as a relevant factor the value and nature of any property dealt with or likely to be dealt with: [66] (Bathurst CJ); [69] (Beazley P); [70] (Gleeson JA); [71] (Barrett AJA); [72] (Beach AJA). (vii) The primary judge erred in failing to consider the evidence presented by the liquidator and the factors in s 473(10) relevant to the assessment of remuneration. The primary judge erred in focusing solely on proportionality and failing to consider the work actually done and whether the amount charged for it was proportionate to the difficulty and complexity of the tasks performed: [63]-[64] (Bathurst CJ); [69] (Beazley P); [70] (Gleeson JA); [71] (Barrett AJA); [72] (Beach AJA).

Judgment

BATHURST CJ: This is an application for leave to appeal brought by Mr Clifford Sanderson (the liquidator) as liquidator of Sakr Nominees Pty Ltd (in liquidation) (the company) against an order made by a judge of the Equity Division of this Court, determining his remuneration as liquidator of the company for the period 3 November 2014 to finalisation of the liquidation in an amount of $20,000 including GST.
Although the amount in issue is relatively small, the application raises some matters of general importance in relation to the Court's powers in fixing liquidatorsi remuneration. In these circumstances, leave to appeal should be given.
No creditor or contributory of the company appeared on the application in the Court below or in this Court. Thus, there was no contradictor. However, the Australian Securities and Investments Commission (ASIC) appeared and made helpful submissions generally in support of the approach taken by the primary judge. In addition, leave was granted to the Australian Restructuring Insolvency and Turnaround Association (ARITA) to make submissions as amicus curiae on the questions of principle arising in the proceedings.

The factual background

The company was wound-up on 3 September 2012 and the liquidator was appointed as liquidator. The only significant assets of the company were three adjacent properties in North Sylvania which the liquidator realised for $3.72 million.
The liquidator paid some $2 million to secured creditors and around $904,000 to unsecured creditors out of the proceeds of the sale of the property. The creditors were paid out by 10 December 2014, leaving a surplus of $517,830.
In the application before the primary judge the liquidator sought orders that he be justified in paying an amount of $66,939.87 to Colin Biggers and Paisley, solicitors, in respect of legal costs. Approval was given to that payment. In addition the liquidator sought determination of fees which had not been approved by resolution of the creditors. Such an application was necessary as the creditors had been paid out and thus it was impossible to get approval for the fees sought from either a committee of inspection or by resolution of the creditors.
Although the relevant creditors' resolutions were not before the Court, from the affidavit material filed by the liquidator it appears the creditors of the company approved the liquidator's fees for the period up to 3 November 2014. The liquidator claimed that since that period he had undertaken further work in respect of which he claimed fees of $70,283. Of this amount $34,870 was approved by resolution of creditors on 25 November 2014 leaving a balance of $35,413 which could not be approved by creditors as they had been fully paid. The liquidator also claimed a further amount of $22,385 for future work to complete the administration. The total remuneration claimed, including GST, was $63,577.80. The application before the Court was in respect of this amount.
There is no evidence as to why the creditors capped the post 3 November 2014 remuneration at $34,870. However, the liquidator's evidence was that subsequent to the payment to creditors, issues emerged as to the identity of the contributories. It was necessary in those circumstances to settle a list of contributories. The result of the liquidator's efforts was that it was determined that contrary to the contentions of the non-corporate shareholders, a related company, Sakr Bros Pty Ltd (in liquidation) (Sakr Bros), was a contributory of the company entitled to 30.5% of the distribution of the net surplus.
The primary judge approved additional remuneration of $20,000. The liquidator contended that his Honour erred in the manner he arrived at that conclusion.

The legislation

Section 473(3) of the Corporations Act 2001 (Cth) (the Act) sets out the relevant provisions concerning the remuneration of liquidators. It provides as follows: "473(3) A liquidator is entitled to receive such remuneration by way of percentage or otherwise as is determined: (a) if there is a committee of inspection - by agreement between the liquidator and the committee of inspection; or (b) if there is no committee of inspection or the liquidator and the committee of inspection fail to agree: (i) by resolution of the creditors; or (ii) if no such resolution is passed - by the Court."
Section 473(5) empowers the Court to review the liquidator's remuneration in certain circumstances, whilst s 473(10) states matters to be taken into account by the Court in exercising its power under s 473(3) and s 473(5). It is in the following terms: "473(10) 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 is 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."
Section 504 of the Act is the applicable remuneration provision for voluntary winding up generally and entitles any member or creditor or the liquidator at any time before deregistration of the company, to apply to a court to review the amount of the remuneration of the liquidator. Section 504(2) provides for the same matters to be taken into account as those referred to in s 473(10). Similar provisions are made in respect of the Court's power to fix the remuneration of receivers and administrators (s 425(8) and s 449E(4)). It is well established that the same principles are to be applied in fixing remuneration under each provision: Templeton v Australian Securities and Investments Commission (2015) FCAFC 137; (2015) 108 ACSR 545 at [28].
Each of these provisions was inserted into the Act by the Corporations Amendment (Insolvency) Act 2007 (Cth). The background to the provisions and key changes to the legislation were described in the Explanatory Memorandum in the following terms: "4.87 In Stockford [at para 2] [Re Korda; in the matter of Stockford Ltd (2004) 140 FCR 424; [2004] FCA 1682] the court called for 'closer judicial scrutiny [of administrators] fees'. In order to allow a more effective role for the court in reviewing and setting remuneration for insolvency practitioners, the Bill will provide greater guidance to the court by identifying relevant factors for consideration in setting remuneration. Key changes 4.88 The Corporations Act will be amended to require a court to give consideration to a number of factors when setting or reviewing the remuneration of an insolvency practitioner. 4.89 Relevant factors that the court must consider in setting remuneration include: [The Explanatory Memorandum then set out the matters referred to in s 473(10) of the Act]."
Section 473(10) does not apply where the remuneration is fixed by the committee of inspection. However in those circumstances, s 473(11) provides that a liquidator is to prepare and circulate a report setting out such matters as will enable the committee to make an informed assessment as to whether the proposed remuneration is reasonable and giving a summary description of the major tasks performed or likely to be performed and the costs associated with each of those major tasks. Section 473(12) makes similar provision in circumstances where the remuneration is proposed to be fixed by a resolution of creditors.

The primary judgment

The primary judge pointed out that the creditors had approved remuneration to the liquidator in an amount of $197,000. He stated the Court had a wide discretion in fixing the level and basis of remuneration and the liquidator bore the onus of establishing the work was properly performed and the amount claimed was fair and reasonable.
The primary judge, referring to s 473(10) of the Act stated that the remuneration may be by way of commission on assets realised or distributed or on a time basis. He stated that liquidators would not necessarily be allowed remuneration at their firm's standard hourly rates, particularly in smaller liquidations where he stated questions of proportionality, value and risk loomed large and that liquidators cannot be expected to be rewarded for their time at the same hourly rate as would be justifiable if more property was available. In that context he referred to his remarks in Re AAA Financial Intelligence Ltd (in liquidation) (No 2) ACN 093 616 445 [2014] NSWSC 1270 at [45] to the effect that it was wrong to assess reasonable remuneration by reference only to time reasonably spent at standard rates, which though a consideration, is only one of several and should not be regarded as the default position or dominant factor but was to be considered in the context of other factors including the risk assumed, the value generated and proportionality.
The primary judge stated that, whilst not without its shortcomings, ad valorem remuneration is inherently proportionate and incentivises the creation of value rather than the disproportionate expenditure of time. He stated that ad valorem assessment was once considered conventional and was still contemplated by the relevant statutory provisions. In that context his Honour referred to Re Carton Ltd (1923) 39 TLR 194 and his own decisions in Re Hellion Protection Pty Ltd (in liq) [2014] NSWSC 1299 at [9]-[10] and Re Gramarkerr Pty Ltd (No 2) [2014] NSWSC 1405 at [5], [10].
His Honour referred to the fact that the liquidator employed agents and solicitors to negotiate and complete the sale of the North Sylvania properties. He stated that although that was entirely proper, it represented a significant transfer of risk and responsibility to others.
The primary judge accepted that proofs of debt were disputed and that the liquidator received no cooperation from the directors or the company's accountants, which he described as hardly an unusual aspect of a liquidation. He pointed to the fact that the liquidator had been required to go through the list of contributories, a matter arising after approval of the remuneration by creditors.
The primary judge noted that the application of the rates which were allowed in previous cases to which he had referred suggested an amount of remuneration of $195,000 would be appropriate and in the circumstances, suggested that, subject to two considerations, he would have been inclined to award a total of $200,000 in respect of the liquidation. The first of the considerations was that the contributories raised no objection to the liquidator's claim. In relation to the second consideration, his Honour made the following remarks and reached the following conclusion (at [25]): "[25] The other is that I accept that there has been additional work occasioned that was not anticipated at the time of the 3 November 2014 approval, and that that has been necessitated by the emergence of the issue about the identity of the contributories and the necessity to settle a list of contributories. On that basis, I am prepared to allow some additional remuneration over and above that which has already been approved by creditors, but not by any means the full amount claimed. I propose to approve $20,000 in addition to that which has already been approved by the creditors."
His Honour accordingly awarded additional remuneration in the amount of $20,000.

The grounds of appeal

The following grounds of appeal were relied upon: "1. The primary judge erred in determining the liquidator's remuneration pursuant to s. 473(3)(b)(ii) of the Corporations Act 2001 for the period 3 November 2014 to the finalisation of the liquidation to be $20,000 (inclusive of GST) by: (a) failing to take into account the reasonableness of the work performed (or to be performed) by particular persons, how long it took (or would take) to do the work, their hourly rate; the rate charged (or to be charged) and the value of the work; (b) misapplying considerations of proportionality; including the determination of the 'value' of liquidator's work; (c) applying arbitrary rates of ad valorem remuneration; (d) finding that, in smaller liquidations, liquidators cannot expect to be rewarded for their time at the same hourly rate as would be justifiable when more property is available; (e) failing to take into account that from the commencement of the liquidation, on 3 September 2012, the creditors had approved remuneration pursuant to s.473(3)(b)(i) of the Corporations Act on the basis of time costing. (2) The primary judge ought to have determined the liquidator's remuneration pursuant to s. 473(3)(b)(ii) of the Corporations Act for the period 3 November 2014 to the finalisation of the liquidation by taking into account, amongst the other matters set out in s. 473(10): (a) the reasonableness of the work performed (or to be performed) by particular persons; (b) how long it took (or would take) to do the work; (c) the hourly rate; (d) the rate charged (or to be charged); and (e) the value added by the work."

The liquidator's submissions

The liquidator submitted the provisions of s 473(3) and s 473(10) of the Act require the Court to determine remuneration by applying and taking into account a broad range of evaluative factors, but ultimately deciding what is reasonable. He submitted that the breadth of the statutory language in s 473(10) confers on the Court a broad discretion as to the particular weight to be given to the matters referred to in that subsection, subject to the overriding requirement of reasonableness.
The liquidator also accepted that when reasonable minds might differ on the question of reasonableness and where there is no one correct conclusion, clear error in the judge's approach or findings must be established: Templeton v ASIC supra at [23].
The liquidator submitted that the additional work undertaken by him led to Sakr Bros participating in the liquidation and was necessary because of the attempt by the non-corporate shareholders to exclude that company. He pointed to the fact that the work performed by the liquidator to ascertain the identity of the contributories was mandatory and had it not been done, Sakr Bros may not have participated in the distribution. He noted that the work included the making of an application under s 488(2) of the Act for leave to distribute the surplus assets of the liquidation and satisfying the Court that there was a surplus and that the appropriate contributories had been identified. The liquidator also pointed to the fact that the fee took into account outstanding mandatory work including an application for his release and deregistration of the company.
Counsel for the liquidator emphasised that the work in settling the list of contributories was only necessary because of the acts of the individual shareholders purporting to conceal the shareholding of Sakr Bros. She submitted that settling that issue in a broad sense provided value in the administration. She noted it was not suggested the work was not performed in a reasonable or timely fashion. She submitted that once that was established, the value of the amount involved was an irrelevant consideration.
The liquidator submitted the primary judge erred in taking into account matters which occurred prior to 3 November 2014 in respect of which the creditors had already approved remuneration. He submitted the reasoning of the primary judge was predicated on the amount he would have determined as reasonable remuneration for the entire liquidation, noting that the primary judge stated that $200,000 would be ample reward.
The liquidator submitted the primary judge gave no substantive consideration to the value of the additional work and provided no substantive reason why $20,000 was the appropriate sum. He submitted that the primary judge overlooked the fact that a large part of the work was mandatory, submitting that authority established that mandatory work was of value. He also submitted the primary judge did not take into account that the mandatory work was necessary for a dividend to be paid and resulted in Sakr Bros getting the return to which it was entitled.
The liquidator also submitted the primary judge erred in considering the question of proportionality. He submitted the primary judge limited the concept of proportionality to the relationship between the value of the company's assets and the amount of remuneration. The liquidator submitted it was not so limited. At the hearing counsel for the liquidator submitted that in considering proportionality the relevant comparator is the value of the services provided by the work. The liquidator submitted that where the work was mandatory and unrelated to the realisation of assets, proportionality in the sense described by the primary judge was irrelevant. He submitted the primary judge failed to address the relevant question, namely whether the value of the work performed was proportionate or disproportionate to the remuneration sought for it.
The liquidator also submitted that the rates utilised by the primary judge in determining the figure of $200,000 were quite arbitrary and there was no justification for a different approach in smaller liquidations, submitting that there was no such statutory concept.

ASIC's submissions

ASIC identified the issue in question as being whether ad valorem remuneration is an appropriate tool to determine the reasonableness of remuneration of liquidators and whether it should be the preferred approach in low asset value liquidations.
ASIC submitted that time based remuneration focused on the costs to the liquidator of performing the tasks, rather than the value of the services rendered by the liquidator. It submitted that such remuneration was not a direct measure of the actual cost of performing the work, noting that a profit margin was generally incorporated into hourly rates. It pointed to the criticism of time based remuneration in Re Carton Ltd supra and in Mirror Group Newspapers plc v Maxwell (No 2) [1998] 1 BCLC 638. In the latter case Ferris J stated (at 652) that time spent represents a measure not of the value of the service rendered but of the cost of rendering it.
ASIC pointed out that a court in determining or reviewing remuneration must have regard as to whether it is reasonable and in doing so take into account any or all of the matters in s 473(10)(a)-(l). It pointed out that of these matters only s 473(10)(k) deals specifically with time based remuneration. It submitted that this demonstrated there was nothing in s 473(10) of the Act which requires a court to approach the question of the reasonableness of remuneration exclusively on any basis.
ASIC submitted there was no authority requiring the use of a time based approach to the fixing of remuneration by the Court. It pointed to the comments of Finkelstein J in Re Korda; in the matter of Stockford Ltd (2004) 140 FCR 424; [2004] FCA 1682 at [42] to the effect that practitioners working on a time based remuneration have an incentive to maximise the time spent on the administration (citing Re Carton supra) and to his suggestion (at [41]) that in a small liquidation the Court should develop a rate or scale which was fair and reasonable to both insolvency practitioners and creditors. It submitted that the judgment of Brereton J in AAA Financial Intelligence supra was referred to with approval by Farrell J in Warner, Re GTL Tradeup Pty Ltd (in liq) (2015) 104 ACSR 633; [2015] FCA 323 and that Robb J suggested a similar approach in Re Clout in its capacity as liquidator of Mainz Developments Pty Ltd (in liq) [2016] NSWSC 1146; (2016) 115 ACSR 459 at [131]-[135].
ASIC submitted that in the context of smaller liquidations questions of proportionality and value loomed large and the contrast between the interests of the liquidator and those of the creditors and contributories is often brought into sharp relief. It submitted there were sound reasons why in such liquidations greater prominence might be given to proportionality as the payment of remuneration will have greater effect on the payment of any dividend and thus erode confidence in the external administration process. It accepted, however, that to suggest ad valorem remuneration should always be preferred or adopted without modification or without regard to the facts of an individual case would fetter the discretion of the Court and is not supported by s 473(10) of the Act.
Nevertheless ASIC submitted that in the ordinary course of determining remuneration in smaller liquidations, the calculation of fees on an ad valorem basis was to be preferred. It submitted that ad valorem remuneration provides an easier and cheaper method of determining reasonable remuneration, helping to reduce the administrative and legal costs to the liquidator of justifying his or her fees and reducing the burden on the Court. Secondly, it submitted that time based remuneration as opposed to ad valorem remuneration requires a court to scrutinise the material before it, often unaided by a contradictor. Thirdly, it submitted that if liquidators apprehend that their fees in small liquidations are likely to be determined on an ad valorem basis, it may guide their decision as to what work should be undertaken. Fourthly, it submitted that ad valorem remuneration provides a norm against which claims to higher remuneration can be identified and scrutinised.
ASIC accepted that inherent in the underlying rationale of ad valorem remuneration is the application of a percentage not linked to the specific facts of an individual case and to that extent there was an element of arbitrariness. It submitted, however, that time based remuneration also involved an element of arbitrariness.
Senior counsel for ASIC submitted that it was difficult for a court to verify whether the time taken to undertake the work in question and the amounts charged were in fact reasonable. He submitted the fact that an ad valorem calculation focuses on the assets to be distributed should not be a reason to avoid use of the model because the primary purpose of liquidation is to transfer the assets of the company to the creditors and contributories.

ARITA's submissions

ARITA submitted that there was a difference in approach in determining remuneration in this Court and that taken in the Federal Court and other State courts. It submitted that a time based approach is better suited to the determination of reasonable remuneration.
ARITA submitted that the chapeau to s 473(10) requires a court to have regard not only to whether remuneration is reasonable but to those matters in s 473(10)(a)-(l) as are relevant to the case.
ARITA submitted that s 473(10)(a) assumes correctly that a liquidator approaching the Court will provide details of the work done and time spent on it. It submitted that the question of whether the work was reasonably necessary will depend at least in part on whether the work was required to be done by legislation or whether the liquidator could have refused to perform the work consistent with his or her professional obligations. It noted that many tasks do not augment either recovery or distribution. It submitted the value added by these tasks cannot be ascertained on a percentage based assessment.
ARITA also submitted that ss 473(10)(d), (e), (f) and (i) focus on the quality and difficulty of the work in question. It submitted that any attempt to set remuneration by hindsight reference to a usual or standard percentage must necessarily ignore such factors.
ARITA also submitted that such a percentage approach cannot be justified on the basis that what a liquidator loses on a complex liquidation can be recouped from another simple one. Further it submitted that attempts to adjust for complexity by increasing or decreasing a chosen reference percentage cannot reflect the work actually done because the percentage itself must be arbitrary and in any event unless the underlying work is examined, there is no principled basis to determine the adjustment. It also submitted that the quantum of recoveries and distributions may be completely unrelated to the quality of the practitioner's work.
ARITA submitted that percentage based methods based on monetary outcomes do not provide proportionality in the true sense of reward for reasonably necessary work properly performed.
Referring to s 473(10)(j), ARITA submitted that the number, attributes and behaviour of the company's creditors all influence the amount of work a liquidator is required to undertake to properly conduct a liquidation. It submitted that uncooperative and combative creditors or creditors with complex claims can increase the difficulties which a liquidator faces and increase the amount of work he or she has to do. It also submitted that the wishes of creditors as to whether or not certain things should be done also influence the amount of work required which could be regarded as reasonable and appropriate.
ARITA emphasised that in the present case the work was required by the attitudes and behaviour of the contributories. In these circumstances it submitted it was not reasonable to set remuneration by matters irrelevant to that work.
ARITA also emphasised that when a liquidator approaches a court for approval of time based remuneration, he or she bears the onus of proving the remuneration sought was reasonable. ARITA accepted that it may be legitimate to use a percentage based calculation as a crosscheck but submitted that time based methodology is the best method of calculating reasonable remuneration within the format of s 473(10).

(a) Some preliminary matters

The liquidator accepted that to succeed in the appeal he had to demonstrate error by the primary judge in reaching his conclusion. In my opinion he was correct in doing so.
Section 473(10) requires the Court, in exercising its powers to fix remuneration, to take into account any or all of the matters referred to in the subsection. It does not seem to me this is a decision involving the application of a vague general standard and one the nature of which can only be reviewed on the principles enunciated in House v The King (1936) 55 CLR 499; [1936] HCA 40. Rather, the Full Court of the Federal Court in Templeton v ASIC supra, in my respectful opinion, was correct in concluding (at [23]) that the Court in exercising its powers to fix remuneration was applying a legal norm of reasonableness and in that application identifying and evaluating relevant facts. As was pointed out in Dwyer v Calco Timbers Pty Ltd (2008) 234 CLR 124; [2008] HCA 13 at [40], in such a case the occasion for appellate intervention will depend on the nature and scope of the particular statutory appeal for which the legislation provides.
In the present case the appeal is brought under s 75A of the Supreme Court Act 1970 (NSW) and is an appeal by way of rehearing. Nevertheless, in cases such as the present where the conclusion of the primary judge depends on a range of factors on which reasonable minds might differ, the existence of error of law or fact is an indispensable condition of a successful appeal: Norbis v Norbis (1986) 161 CLR 513; [1986] HCA 17 at 518-519; Templeton v ASIC supra at [23]; Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424; [2001] FCA 1833 at [22]-[25]; Weston v Publishing and Broadcasting Ltd (2012) 88 ACSR 80; [2012] NSWCA 79 at [156]-[157]; see also the helpful discussion of this issue by Allsop P (as his Honour then was) in DAO v The Queen (2011) 81 NSWLR 568; [2011] NSWCCA 63 at [84]-[95].
Much of the debate during the course of the hearing centred on the respective merits of what were described as time based remuneration and ad valorem remuneration. The critical question is whether the judge erred in his determination of reasonable remuneration. Section 473 of the Act does not provide for any particular method of calculation but refers to remuneration by way of percentage or otherwise. Thus if a judge taking into account the evidence of the work done and the matters in s 473(10) came to the view that remuneration calculated by way of a particular proportion of assets recovered or assets distributed was reasonable, he or she would be entitled to fix remuneration on that basis. Similarly if a judge after considering the work done and the relevant factors in s 473(10) concluded that remuneration calculated on a time basis was reasonable, he or she would be entitled to fix remuneration on that basis.
However, it would not in my opinion be appropriate to fix remuneration on an ad valorem basis by simply applying a percentage considered appropriate to all liquidations or to a particular class of liquidations without regard to the particular work done or required to be done in the liquidation in question. To do so would pay no regard to the requirements of s 473(10), all of which, with the possible exception of s 473(10)(l), are directed to the particular liquidation under consideration by the Court.
What I have stated is supported by the legislative history. Prior to the amendment to the legislation in 2007, the Act did not set out any factors to be considered by the Court in fixing remuneration. As the Explanatory Memorandum indicated, the amendment was to give guidance to the Court in determining the appropriate remuneration following comments by Finkelstein J in Re Korda supra at [2]. It seems to me that whilst not all the factors in s 473(10) may be relevant in a particular case, for a court not to take any of them into account would constitute error.
It is well settled that the onus is on the liquidator to establish that the remuneration claimed is reasonable and that it is the function of the Court to determine the remuneration by considering the material provided and bringing an independent mind to bear on the relevant issues: Venetian Nominees Pty Ltd v Conlan (1998) 20 WAR 96; (1998) 16 ACLC 1653; Conlan (as liquidator of Rowena Nominees Pty Ltd) v Adams (2008) 65 ACSR 521; [2008] WASCA 61 at [28]-[29]. Although these two cases related to the legislation as it stood prior to the 2007 amendments, the principles referred to in them remain applicable. Further, it will be expected that the liquidator in supplying material to enable the Court to assess whether a remuneration claim was reasonable, would supply material by reference to the matters referred to in s 473(10).
That is not to say that the question of proportionality has no bearing on the task to be undertaken by the Court. As the Federal Court said in Templeton v ASIC (at [31]) the question of proportionality is a well recognised factor in considering the question of reasonableness and the factors in s 425(8)(d)-(e) and (g)-(h) (the equivalent to s 473(10)(d)-(e) and (g)-(h)) have as their unifying theme the concept of proportionality. The Court in that case recognised (at [32]) that the question of proportionality in terms of work done as compared with the size of the property the subject of the insolvency administration or the benefit to be obtained from the work, is an important consideration in determining reasonableness. The Court also stated (at [33]), endorsing the observations of McClure JA in Conlan v Adams supra (at [47]), that the work done must be proportionate to the difficulty and importance of the task in the context in which it needs to be performed, stating that that is what is encompassed in assessing the value of the services rendered.
Further, as was pointed out by Black J in Idylic Solutions Pty Ltd [2016] NSWSC 1292 at [50], evidence as to the percentage that remuneration constitutes of realisation, will at least provide a measure of objective testing of the reasonableness of the remuneration claimed and will identify those cases in which there ought to be a real concern in that respect.
I would add two matters. First, the mere fact that the work performed does not lead to augmentation of the funds available for distribution does not mean the liquidator is not entitled to be remunerated for it. The most obvious example is work done by a liquidator in complying with his or her statutory obligations. As Farrell J pointed out in Warner, Re GTL Tradeup Pty Ltd supra at [71] it is relevant to consider whether the work was necessary to be done. If it was, there is no reason the liquidator should not be remunerated for it.
Secondly, there are commonly cases where work is undertaken in an unsuccessful attempt to recover assets whether at the request of creditors or otherwise. Provided it was reasonable to carry out the work and the amount charged for it was reasonable, there is no reason a liquidator should not recover remuneration for undertaking the work. Indeed, as was pointed out in Hall v Poolman (2009) 75 NSWLR 99; [2009] NSWCCA 64 at [128]-[129] there is a public interest in liquidators bringing recovery proceedings such as proceedings against directors for breach of duty or insolvent trading and proceedings for recovery of unfair preferences. However, the liquidator is obliged to make any decision to bring such proceedings with care, and negligence in the exercise of the power to bring proceedings may lead to a liquidator being deprived of costs: Hall v Poolman supra at [144]-[145].
In making the above comments I am conscious of the criticisms that have been levelled against time based charging. The areas of criticisms generally speaking are first and principally that time spent represents a measure not of the value of the services rendered but of the costs of rendering them and, secondly, time spent is only one of a number of relevant factors to be considered: see Re Carton supra at 197; Mirror Group Newspapers supra at 648-652; Re Korda supra at [41]-[45]; Re AAA Financial Intelligence supra at [45]-[47]. There is force in those criticisms. However, it remains the responsibility of the Court to fix reasonable remuneration on the evidence before it, taking into account the matters referred to in s 473(10). That must include, in my opinion, considering the work done by the liquidator, whether it was reasonable to carry it out and the appropriateness of the amount charged for it. Such an evaluative process, whilst difficult in some circumstances, does not seem to me to be beyond the competence of the Court.
Further, it should not be concluded from what I have written that a time based calculation will always be appropriate. The task of the Court is to fix reasonable remuneration having regard to the evidence before it and taking into account the matters in s 473(10). Thus for example, the "Lodestar" approach explained by Finkelstein J in Re Korda supra at [47], may in some circumstances be an appropriate method of undertaking the task: see also Re Clout supra at [134]-[135].

(b) Was there error in the approach of the primary judge

The liquidator submitted that once it was established that the work was necessary and was performed in a reasonable and timely fashion, the value of the work involved was an irrelevant consideration. Put in that bald fashion, I am unable to agree. The judge, in considering the amount to be awarded, was entitled to take into account all the matters in s 473(10) including the value of the work in the sense referred to at [55] above. That being said, the fact that the work was required and there was no evidence that the rates charged or the hours spent were excessive is a highly relevant factor.
The liquidator also submitted the primary judge erred in taking into account events which occurred prior to 3 November 2014 in respect of which the liquidator had already received remuneration. It is not entirely clear whether the primary judge in fact did so. Although he expressed the view that $200,000 would have been adequate remuneration for the liquidation, he recognised that additional work had been performed for which the liquidator was entitled to remuneration: see [20] above. Although it is by no means clear how the figure of $20,000 was arrived at, it was not necessarily based on his opinion that $200,000 was adequate remuneration for the liquidator.
However, the other criticisms made by the liquidator of the primary judge's reasons, in my opinion, do have force. As the liquidator pointed out, the primary judge did not seem to give any consideration to the value of the additional work in fixing the remuneration at $20,000. Nor did he appear to have taken the evidence presented by the liquidator into account or considered any of the factors in s 473(10) of the Act relevant to the assessment of remuneration. In my opinion, he erred in failing to do so.
Further, in my opinion, his Honour also erred in his consideration of the question of proportionality. As I have pointed out (at [55] above), proportionality in terms of work done compared to the size of property or activity the subject of the administration is a relevant factor in fixing remuneration. However, in focusing solely on this issue, his Honour again failed to give consideration to the work actually done and whether the amount to be charged for it was proportionate to the difficulty and complexity of the tasks to be performed. His Honour in my respectful opinion erred in failing to do so.
It does not appear to me that the primary judge adopted any particular rate in arriving at the figure of $20,000 additional remuneration. In the circumstances, it is not necessary to deal with the criticism that the rates used in arriving at the overall figure of $200,000 were quite arbitrary. Having said that, I repeat that whatever methodology is adopted, the task of the Court is to determine on the evidence before it and taking into account the factors in s 473(10) of the Act whether the remuneration is reasonable.
Further I agree with the liquidator that the statute does not mandate a separate approach for smaller liquidations. However, it must be borne in mind that s 473(10)(h) of the Act provides as a relevant factor the value and nature of any property dealt with or likely to be dealt with.

Conclusion

In the result, the appeal should be allowed. The proceedings should be remitted to a judge of the Equity Division of the Court for rehearing. The Draft Notice of Appeal sought no order for costs and none was sought at the hearing.
In those circumstances, the following orders should be made: 1. Grant the applicant leave to appeal. 2. Direct the applicant within 14 days to file a Notice of Appeal in the form of the Draft Notice of Appeal appearing at tab 3 of volume 1 of the White Book. 3. Appeal allowed. 4. Remit the application for remuneration to a judge of the Equity Division of the Court for rehearing.
BEAZLEY P: I have had the advantage of reading in draft the reasons of the Chief Justice. I agree with his Honour's reasons and proposed orders.
GLEESON JA: I agree with Bathurst CJ.
BARRETT AJA: I agree that orders should be made as the Chief Justice proposes. I also agree with his Honour's reasons. I would add that 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.
BEACH AJA: I concur with the reasons and orders proposed by the Chief Justice.

Amendments 10 March 2017 - Headnote - Amended Solicitors for Parties 21 July 2017 - [2] change liquidator's to liquidators' [45] change influences to influence DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 July 2017

Corporations Amendment (Insolvency) Act 2007(Cth)

Corporations Act 2001(Cth)ss 473, 504, 488, 425, 449E

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