Remuneration of administrators cases show courts' lack of consistency

In brief - Courts differ on how to assess remuneration

Cases involving insolvency practitioner's remuneration have shown that the superior courts are not always aligned in how they apply the concept of proportionality, differing in how much emphasis should be given to the value of realisations.

New South Wales Supreme Court considers administrator's entitlement to fees

In case you find yourself appointed as an external administrator and you need to seek court approval for the payment of your fees, what follows may come in handy.

We recently acted on behalf of administrators appointed at the eleventh hour to a company where winding up proceedings had already commenced. We were able to get an adjournment of the wind up application, brought by a determined creditor, sufficient for the 439A Report to be prepared but prior to the second meeting of creditors. No Deed of Company Arrangement proposal was put up and consequently the Court put the company into liquidation and appointed the plaintiff's nominee (relatively common practice, particularly in the New South Wales Supreme Court).

The question arose as to the administrator's entitlement to fees which could no longer be approved by the creditors as he had ceased to be the administrator.

Courts differ on emphasis paid to realisations and distributions when considering concept of proportionality

Whilst the Supreme and Federal Courts both have power to deal with the issue of an administrator's fees, over recent times a difference in approach to administrator's remuneration between the two courts has become discernible.

Consistent with the AAA Financial Intelligence Limited [2014] NSWSC 1270 (AAA) line of authority, the Supreme Court of New South Wales will generally, though not always, adopt an ad valorem approach asking:

• what has been the quantum of realisations?
• what has been the quantum of distributions?

Applying that approach to our client's particular circumstances would likely have resulted in a very modest recovery of fees, likely far less than most Sydney CBD insolvency practitioners would require to even meet the expenses on such an appointment.

The full bench of the Federal Court in Templeton v Australian Securities and Investments Commission [2015] FCAFC 137 has maintained the position that considering proportionality as a concept in remuneration is just one of the factors that should be taken into account when the court is exercising its discretion to approve an external administrator's remuneration. The Federal court does not, however, place the same close emphasis on realisations as seen in the AAA approach.

In our case, the application was filed in the Federal Court and the application was dealt with in Chambers and was wholly successful.

Sakr Nominees appeal case may show whether courts are aligning their approaches to insolvency issues

It is generally considered appropriate for superior courts to be aligned in relation to insolvency issues and there can be few issues more important to the survival of the insolvency practitioner's business than remuneration, so it will be interesting to see whether the apparent difference in the approaches adopted by the two Courts will align over time. Relevantly, the matter of Sakr Nominees (in which the AAA approach was adopted) is presently under appeal by another one of our clients to the New South Wales Court of Appeal.

We will, of course, keep you posted.