In the recent decision of ASIC v Groundhog Developments Pty Ltd & Ors [2011] QSC 263, the Supreme Court of Queensland was asked to consider whether the remuneration claimed by the liquidators of the respondents was fair and reasonable. The Court was highly critical of the liquidators in their application for approval of their remuneration and expenses.
Timeline of events
the proceedings began in 2001 by ASIC seeking to restrain the respondents, who were operating an unregistered investment management scheme;
in February 2003 an order was made appointing liquidators to the first and third respondents and to the investment scheme;
by April 2003 all identifiable assets were got in;
in May 2003 the one and only meeting of creditors was called and the creditors voted against making any further enquiries;
by May 2004, the liquidators had received the proofs of debt in the liquidation;
by May 2004, (in the Court’s opinion) the work of liquidating the companies and scheme was virtually over;
in November 2004, preparation for the application for remuneration began by the liquidator. The liquidator spent 6 years preparing for this application; and
the application for approval of the liquidators’ remuneration was heard on 9 June 2011.
Some statistics
the liquidation revealed that over $5.3 million was invested in the unregistered investment management scheme;
$527,000 was recovered (now $740,000 allowing for interest);
all documents associated with the liquidation fit into 10 archive boxes;
there were 129 proof of debts;
the liquidators claimed $532,331 for remuneration and expenses; and
the Court approved remuneration and expenses at $259,885.
Approving remuneration
In these proceedings the judge made it very clear that the Court’s role is to determine for itself whether or not the remuneration claimed by a liquidator is fair and unreasonable. The fact that no-one objects to the claim (as was the case here) does not detract from the Court’s duty.
For the Court to undertake this task there must be an appropriate type and amount of material before the Court which demonstrates that the work undertaken by the liquidators was appropriate and necessary. This evidence must allow the Court to make up its own mind as to the appropriateness and need for the work that was undertaken.
If liquidators fail to provide adequate material to enable the Court to decide whether or not the claim is reasonable, the Court should not make the order approving the remuneration.
Where did the liquidators in this case go wrong?
In this case the Court was highly critical of the liquidators’ application for approval of their remuneration and the amount claimed by the liquidator ‘did not withstand scrutiny’. The Court had the following criticisms of their application.
Volume of evidence before the Court
The affidavit evidence put before the Court by the liquidator was excessive. They attached over 4,000 pages of exhibits to their affidavit. The liquidators claimed that they were discharging their duty to put all material facts before the Court. The Court held that this was excessive and wasteful. The judge stated that the liquidators could have deposed to having perused the various classes of documents and drawn conclusions.
Inability to determine meaning of the evidence
Although there was an excessive amount of material before the Court, the judge said that it was still not sufficient to enable him to understand the work performed and the purpose of the application. A large proportion of the exhibits were the liquidators’ time-costing schedules. These were large spreadsheets containing many hundreds of entries. The judge said that these were far too detailed to allow the Court to ascertain what the liquidators aimed to achieve and how they went about it and were therefore meaningless.
On the other hand the sworn description of the work undertaken by the liquidators, and their lawyers, were too general to enable the Court to have any real understanding of what work was performed and why it was necessary and appropriate.
Delay
For a relatively small and uncomplicated liquidation, the application for remuneration took 7 years to come to court. There was no adequate explanation provided by the liquidators for this delay. The judge saw this time spent as inefficient, extraordinary and unjustified and noted that during this period the creditors of the respondents have been held out of what little money remains in their investments. The judge was of the opinion that the excessive delay in the matter must have produced inefficiencies which contributed to the costs being unreasonably high.
Disproportion
The making of the application for remuneration lasted about three times as long and cost more than the work on the liquidation. The judge was of the opinion that this was unnecessary and disproportionate. He said that the application should have really been a simple matter where the liquidators explained to the Court their conclusions as to ownership of the monies recovered and put before the court some straightforward material as to what they had done in reaching those conclusions so as to justify their costs.
The lessons to be learned
Any application by liquidators for approval of their remuneration should be proportionate to the size of the liquidation and be brought in a timely manner.
As it is the Court’s role to determine whether the remuneration and costs claimed by the liquidator are fair and reasonable it is imperative that the evidence put before the Court assists it in this regard.
The material put before the Court should:
clearly identify the work undertaken by the liquidator and identify what the liquidator was attempting to achieve through the liquidation;
be proportionate to the size and complexity of the liquidation; and
contain appropriate and meaningful detail of the work undertaken.
The Court has to be able to come to its own conclusion on the material before it that the remuneration claimed by the liquidator is fair and reasonable.
For more information, please contact:
Alison Robertson..............................Philippa Honey
Partner ........................................Solicitor
(08) 9288 6872 .......................... .... (08) 9288 6942
alison.robertson@lavanlegal.com.au .. philippa.honey@lavanlegal.com.au
