The Sakr nominees appeal: clarification of the assessment of reasonable remuneration

Since September 2014, Justice Brereton in the Supreme Court of New South Wales has delivered a number of judgments approving the applicant practitioner’s reasonable remuneration significantly below what was being sought, on the basis of a percentage of the realisations in the administration rather than a time-costed basis. The rationale for doing so lies in proportionality between the remuneration and the assets available for creditors, primarily in ‘small’ liquidations.

We have covered the line of decisions from Justice Brereton in previous editions of our Insolvency Quarterly (links here, here and here), most recently the decision in In the matter of Sakr Nominees Pty Ltd [2016] NSWSC 709 (Sakr Nominees). Each of the decisions of Brereton J have been met with much concern from the profession that the practitioners in those cases had not received adequate remuneration for time spent on tasks that were reasonable and necessary in those administrations.

The Sakr Nominees decision was appealed to the Court of Appeal of the Supreme Court of New South Wales. The appeal was heard on 23 November 2016 and the Court of Appeal’s decision handed down on 9 March 2017, unanimously allowing the appeal (Sanderson as Liquidator of Sakr Nominees Pty Ltd (In Liquidation) v Sakr [2017] NSWCA 38).

In this article, we:

• Explain the key aspects of the judgment of Bathurst CJ, with which each of the other appeal judges agreed; and
• Provide some practical guidance for dealing with remuneration approval applications in light of the Sakr Nominees appeal.

The appeal

At first instance, the application before Justice Brereton was for approval of the liquidator’s remuneration of $63,557.80 for work including settling a list of contributories following the payment of all creditors in full. His Honour approved only $20,000, calculated on an ‘ad valorem’ basis being what his Honour considered an appropriate percentage to apply to the realisations in the liquidation. His Honour considered the ‘ad valorem’ approach to be an appropriate and proportionate measure of reasonable remuneration, particularly in smaller liquidations.

The liquidator appealed the approval of only $20,000 in remuneration. The grounds of appeal were essentially that his Honour had erred by failing to take into account the criteria set out in s473(10) of the Corporations Act 2001 (Cth) (Act) for determining reasonable remuneration. Both ASIC and ARITA intervened in the appeal.

The decision 

The appeal was allowed and the matter remitted back to the Supreme Court of New South Wales for rehearing.

The Court of Appeal found that his Honour had erred in:

• Failing to consider the factors set out in section 473(10) of the Act on the evidence presented by the liquidator. That is, whether the work actually undertaken by the liquidator was reasonably necessary, and the other statutory considerations relating to the work; and
• Focusing solely on the proportionality between the remuneration and the size of the property subject of the administration at the exclusion of the work actually done and whether the amount to be charged was proportionate to the difficulty and complexity of the tasks performed.

The Court of Appeal also provided clarity on a number of other issues relevant to the determination of the reasonableness of a practitioner’s remuneration:

• Section 473 of the Act does not mandate a method for calculating remuneration, whether time-cost or ‘ad-valorem’, but rather directs the Court to take into account the various criteria set out in section 473 of the Act on the evidence presented, which necessitates the consideration of the particular work undertaken by the practitioner;
• A practitioner was entitled to be remunerated for certain work that they are required to undertake that does not augment the funds available for distribution, such as statutory compliance;
• There was force in the criticism of time-costing in so far as it may not reflect the value of services provided. However, the Court was required to fix reasonable remuneration by considering the work being done, the complexity of the work and the appropriateness of the amount charged for it; and
• It should not be concluded from the decision that a time-costing calculation of remuneration will always be appropriate. Ultimately, the nature of the tasks and the cost of performing those tasks needs to be assessed taking into account the various factors in section 473(10) of the Act.

Practical guidance

The appeal judgment provides clarity in respect of the approach to be taken by the Courts in assessing the reasonableness of remuneration sought. In particular, that the Court is required to assess the actual work undertaken by the practitioner, on the evidence presented to the Court and against the criteria set out in section 473(10) of the Act.¹

As a practical matter, the focus of the practitioner seeking approval from the Court for their remuneration remains to provide detailed evidence to the Court to substantiate the necessity of the work undertaken, the complexities of that work and the reasonableness of the fees charged for the work. In light of the clarity provided by the appeal judgment, the traditional approach to a remuneration application appears to be largely unchanged.

This article was written by Grant Whatley, Partner and Neil Perl, Senior Associate. 

¹or s 504(2) for voluntary liquidators, s 449E(4) for administrators and deed administrators and s 425(8) for receivers.