Challenging a Liquidator’s entitlement to remuneration: In the matter of RMGA Pty Ltd [2012] NSWSC 678

It is well established that although a liquidator is entitled to fair and reasonable remuneration, it is a matter for the liquidator to justify that entitlement.

This decision revisits the process by which that entitlement is required to be established, and considers in particular whether:

• it was fair and reasonable for a liquidator to claim money for work done after the stay of a winding up of a company; and
  
  
• a liquidator can make a claim for work done in responding to an application for a review of his remuneration under section 473 of the Corporations Act 2001 (Cth) (Act), and an inquiry into his conduct under section 536 of the Act.

The Court ultimately found in the liquidator’s favour, despite opposition from a disgruntled shareholder/director of the company.

Facts

RMGA Pty Ltd (RMGA) was ordered to be wound up on 20 July 2009.  In February 2010, orders were made to stay the winding up of RMGA, subject to a number of undertakings, one of which required a shareholder and director of the company, Ms Mignon Gardner (Gardner) to pay an amount to satisfy the reasonable fees of the liquidator.

Subsequently, on 12 April 2010, Gardner filed an interlocutory application seeking a review of the liquidator’s remuneration under section 473 of the Corporations Act, and an inquiry into his conduct under section 536 of the Corporations Act.  The Court in that decision¹ referred issues in relation to the assessment of the remuneration of the liquidator, Mr David Lewis Clout (Clout) to a Registrar, but otherwise found that Gardner’s claim was unfounded.  In particular, the Court held that Gardner had failed to establish that Clout’s fees or disbursements in the period to 8 February 2010 were excessive or not properly incurred so as to breach his duties in a way relevant to section 536 of the Act.

Application

Mr Clout brought this application in January 2012 seeking a declaration that he was entitled to remuneration for work done after the stay, for the period of 9 February 2010 – 4 November 2011.  Clout claimed over $90,000, a significant portion of which related to “complex” work done in connection with Gardner’s earlier application.

Gardner opposed the application on the basis that, following the stay of the winding up, Clout was only entitled to remuneration for costs associated with tasks which were incidental to completing his appointment.  In particular, Gardner argued that Clout was not entitled to remuneration in respect of the costs of his defence of the section 536 application, or the costs of progressing his claim for remuneration in respect of any period prior to the stay.

Decision

Justice Black said that that while Clout’s claim in respect of the dispute with Gardner raised a question of principle as to whether these costs were properly recoverable as costs of the liquidation.  The authorities supported the view that provided the work was properly undertaken, in the sense of being work reasonably and bona fide undertaken for the purpose of administering the company’s estate, or any public duty imposed by the Act, it was recoverable.

His Honour found that, as in earlier cases which discussed the entitlement of a trustee in bankruptcy², Clout was “drawn into” the disputes as an incident of having acted as liquidator, and his costs of defending his right to remuneration was incurred for the purpose of administering the winding up.  The mere fact that Mr Gardner delayed her challenge until after the winding up had been stayed should not affect Clout’s entitlement.

The Court noted that the position may be different in a case where a liquidator was dealing with a response to an inquiry into his or her conduct by a regulator, such as the Australian Securities and Investments Commission³.

Finally, the Court noted Gardner’s challenge (which he found not to be supported by any evidence) to the adequacy of Clout’s firm’s time recording system.  His Honour drew attention to the IPA Code’s (Code) guidance as to necessary and proper work, in the context of a challenge to the adequacy of the practitioner’s time recording system, and found that these issues were more appropriately dealt with by a registrar, to whom the Court referred the assessment of the remuneration.

Lavan Legal comment

This case illustrates a basic application of the principle that a liquidator is entitled to claim remuneration for fair and reasonable expenses, provided he or she can justify the entitlement, by reference to the period in which the remuneration is claimed, the size and complexity of the liquidation, the number, attributes and behaviour of the company’s creditors, and the other factors set out in section 473 of the Act.

However the Court emphasised that the Code limits practitioners from seeking to recover as “proper and necessary” expenses, those which are incurred because of inadequacies of a practitioner’s or firm’s time recording systems.  Practitioners should therefore be mindful always to ensure proper accountability for their time, both for the benefit of an application for costs, but also to avoid disputes with creditors or other interested parties.

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