Remuneration of insolvency practitioners has come under scrutiny in the Supreme Court of NSW. There is no doubt that liquidators are entitled to reasonable remuneration for their services, but what is ‘reasonable’ and how is it established to satisfy the Court?

Roll the dice

Time based costing is no longer sufficient to persuade the Court that remuneration claimed is reasonable. The focus has shifted towards proportionality and whether the remuneration claimed is proportionate to the value realised and the risks faced in the liquidation.

Remuneration has recently been determined by a percentage based sliding scale - as the amount of realised assets increase, the percentage of remuneration will decrease. This percentage scale was challenged in the case of Mainz Development Pty Ltd (in liquidation) [2016] NSWSC 1146 where the Court rejected the notion that a percentage rate should be applied without consideration of all other relevant circumstances of the winding up.

The Judge reflected on recent application of percentages and, although noting the inconsistency in application, deemed the percentage scale to be only a starting point to be adjusted following assessment of other discretionary factors, such as those set out in sections 473(10) and 504 of the Corporations Act 2001 (Cth).

The chance card

How do you increase your chances of having your remuneration application approved by the Court In circumstances where there appears to be uncertainty, or at least a division of judicial application of principals?

The following will help:

Provide a supporting affidavit setting out a detailed summary of the work carried out

Consider the complexity of the work carried out and the risks involved

Time should be calculated on a time costing basis

Ensure work is carried out by or delegated to an appropriate person

Consider proportionality of assets realised against remuneration claimed

Ensure all remuneration and expenses can be adequately justified (particularly in small liquidations)

Collecting expenses

Insolvency practitioners should also be aware that their expenses will not escape scrutiny by the Court. Ordinarily, expenses are not included in Court approval of remuneration due to an insolvency practitioner’s right to indemnity as set out in the law relating to a trustee’s right of indemnity. However, if the Court considers expenses to be excessive or incurred improperly, the Court has the power to limit the amount which will be approved.

When determining the insolvency practitioner’s entitlement to be reimbursed for incurred expenses, the onus of justifying the expenses rests with the insolvency practitioner. Expenses may be reimbursed if the insolvency practitioner has acted properly in instructing and paying third parties. This includes a careful review of all third party invoices to ensure that sufficient detail is included.

In addition to the Court’s power to limit remuneration and expenses, the Court (or ASIC) may inquire into an insolvency practitioner’s conduct where it appears they have not faithfully performed their duties.

Transparency is key - pass go

In order to avoid the Court’s criticisms, insolvency practitioners must conduct their matters with sufficient commerciality and transparency to ensure that their remuneration, expenses and conduct can be justified to the satisfaction of the Court.

Polczynski Robinson can assist insolvency practitioners with their remuneration application, particularly in complex circumstances or where there may be a dispute as to the amount claimed.

For more informaiton, please contact Stephen Polczynski or Dajana Malnersic on 02 9234 1500.