Getting things in proportion: liquidator remuneration

Key takeaways

In Re Atwell & Co Pty Ltd (in liq) [2017] VSC 683, Justice Kennedy of the Supreme Court of Victoria considered the application of the ‘proportionality’ principle in determining liquidator remuneration. Her Honour dismissed an appeal challenging the remuneration on grounds including that Associate Justice Efthim had erred, at first instance, in applying the 'proportionality' principle by only reducing the liquidators’ remuneration claim by 10%.

There was nothing to suggest that the Associate Judge had erred in circumstances where his Honour had merely observed that the ‘proportionality’ principle is difficult to apply where matters outside of the liquidators’ control had created additional work for the liquidators whilst also reducing realisations. This is another case emphasising the courts’ close scrutiny of the work for which liquidators seek to be remunerated and again highlights that the appropriateness of applying the ‘proportionality’ principle will depend on the circumstances of each case.

Background

Dennis Turner and Luke Targett (Liquidators) of Atwell & Co Pty Ltd (in liq) (Company) sought orders that their remuneration be fixed at $280,000 from the first meeting of the Company’s creditors until the end of the liquidation. The Liquidators’ remuneration was opposed by Mrs Atwell, a sole shareholder and a former director of the Company.

The Company

The Company operated as a real estate agent which also managed a residential rent roll of properties in Melbourne. After the meeting of creditors, it was resolved the Company would run as a real estate business pending its sale.

The Liquidators advertised the rent roll for sale, which attracted a highest bid of $787,000. The bidder subsequently withdrew due to alleged interference by Mrs Atwell and her husband, which resulted in a reduced offer of $416,566. The Liquidators claimed remuneration for the additional work undertaken due to the drawn out sale process caused by the interference of Mr and Mrs Atwell.

Judgment at first instance

In citing passages from the judgment of Justice Black of the Supreme Court of NSW in Re Idyllic Solutions Pty Ltd, Associate Justice Efthim noted that:

• “a claim for remuneration based on hourly rates should at least be tested by reference to a percentage of realisations and possibly, in an appropriate case, displaced by remuneration on that basis or by a mixed approach”¹; and
• there is no rule that proportionality will be applied in all cases, with each case depending on its circumstances.

His Honour considered ‘proportionality’ to be a difficult concept in this case because of the interference of the Atwells, which led to a considerable amount of additional work by the Liquidators to sell the rent roll. His Honour noted that the recovery of assets had not been as expected but that Mr and Mrs Atwell appeared to be the cause of this. Ultimately, his Honour was satisfied the Liquidators’ claim was reasonable and met the criteria in s 504(2) of the Corporations Act 2001 (Cth). His Honour reduced the remuneration by 10% to $252,000 ($280,000 less $28,000), but saw no reason to reduce it further. 

Appeal grounds

Mrs Atwell appealed the decision on grounds including that the Associate Judge erred in applying the ‘proportionality’ principle based on the alleged interference with the rent roll sale. It was argued that the fees should have been reduced to no additional fees, in light of $120,000 already taken by the Liquidators and the alleged interference being of negligible effect. Mrs Atwell submitted expert evidence that the remuneration was excessive given that there were only two assets and three small creditors and that an appropriate sum was between $10,000 and $50,000.

The Liquidators countered the submission that the interference by the Atwells had a negligible effect on the rent roll sale by submitting that the sale had collapsed and there was substantial additional work to be done as a result. Given the interference, it was argued the true value of the assets were depleted at the same time as the amount of necessary work increased. When applying a strict proportionality approach to the remuneration, this produced a skewed analysis with a higher amount of costs as a percentage of realisations than there would otherwise be. The Liquidators provided an estimate of the value of the assets of the Company as between $759,400 - $789,400 versus $1.116 million if the business had been sold at the original price.

Appeal decision

Justice Kennedy considered the relevant principles arising out of the judgment of Chief Justice Bathurst of the Supreme Court of New South Wales in Sanderson (as liquidator of Sakr Nominees Pty Ltd( (in liq)² including:

1. that the question of proportionality includes the proportionality of the work done as compared to the size of the property, and whether work is proportionate to the difficulty and importance of the task in the context in which it needs to be performed;
2. that work not resulting in augmentation of funds, does not take away liquidators’ entitlement to be remunerated;
3. whether the work was necessary; and
4. ultimately it remains the responsibility of the court to fix ‘reasonable remuneration’ on the evidence before it.³

Justice Kennedy found there was nothing to suggest that Associate Justice Efthim had erred in applying the ‘proportionality’ principle, that his Honour had cited the appropriate authority and correctly noted that there is no rule to be applied in all cases.⁴ Despite that, the Associate Judge was still prepared to apply a discount of 10% even where there was no finding that any of the Liquidators’ work was unnecessary and where the Liquidator’s evidence was accepted regarding the additional work required on the rent roll sale.⁵

As no error was demonstrated, there was no basis to substitute a reduced figure.⁶ The Associate Judge had merely observed that proportionality was difficult to apply because of the Atwell’s interference⁷ and that it was appropriate to highlight that interference could skew the figures as suggested by the Liquidators (by increasing hours and decreasing proceeds).⁸

Conclusion

This is another case emphasising the courts’ close scrutiny of the work for which liquidators seek to be remunerated and again highlights that the appropriateness of applying the ‘proportionality’ principle will depend on the circumstances of each case. Here, the ‘proportionality’ principle was difficult to apply because of circumstances outside of the Liquidators’ control creating additional work, whilst at the same time decreasing the proceeds realised by the Liquidators. The application of the ‘proportionality’ principle in this case led to a skewed analysis with a higher amount of costs as a percentage of realisations than there would otherwise be. Further, the Associate Judge’s decision was supported by the context where there was no finding that any of the Liquidators’ work was unnecessary. 

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¹ Per Black J in Re Idyllic Solutions Pty Ltd (2016) 115 ACSR 591 at 598, [49] - [50].

² [2017] NSW CA 38

³ Kennedy J at [106] and [107] citing Bathhurst CJ in Sanderson(as liquidator of Sakr Nominees Pty Ltd) (in liq) v Sakr (2017) NSWCA 38 at 470-470, [55] – [59].

⁴ Ibid, at [111]

⁵ Ibid.

⁶ Ibid, at [112].

⁷ Ibid, at [108].

⁸ Ibid, at [109].

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