Additional remuneration for liquidators under section 511 of the Corporations Act 2001 (Cth)

Westnet WA Infrastructure Holdings Limited [2015] NSWSC 658 is a factually unusual case of involving an application by a liquidator under s 511 of the Corporations Act 2001 (Cth) (Corporations Act), which reaffirms the position on:

• a liquidator’s obligation in dealing with unclaimed payments to shareholders under s 544(1); and
• the Court's power in a members' voluntary winding up to vary a liquidator's fixed remuneration.

Facts

• The same liquidator was appointed to 10 related companies.
• Prior to the appointment, these 10 companies had been involved in a set of schemes of arrangement which had been approved by the Federal Court. 
• Under the terms of those schemes, the shareholders of the companies were entitled to a distribution of shares and cash and, consequently, the schemes administrators issued cheques for those amounts. 
• Of the cheques issued, a total of $11.8 million remained unpresented at the time of the liquidator’s application.  Justice Young suggested that this may have been due to the fact that many of the cheques were for sums less than $100 and recipient investors had just not been bothered to cash them.
• Separately, the costs of the liquidation as at the time of the application, totaling $611,948 had exceeded the liquidator’s fixed remuneration of $336,200.  These substantive costs and fees were a product of various issues arising in the course of the liquidation, including personal injury claims, trademark disputes, compliance with subpoenas, the determination of taxation liabilities, and the specialised storage of a vast quantity of books and records for seven years.

Legal issues

The liquidator applied to the Court under s 511 of the Corporations Act for directions:

• on the treatment of the $11.8 million of cash entitlements that remain unclaimed by the investors as unsecured creditors; and
• approving additional remuneration for the liquidator due to the unexpected complexity of the administration in the amount of $836,544 in addition to the $336,200 already approved.

Moneys held for payment of uncashed cheques

Counsel for the liquidators sought a direction that the appropriate course was payment of the held moneys to ASIC under s 544(1) of the Corporations Act, which provides:

Where a liquidator of a company has in his or her hands an amount being a dividend or other money that has remained unclaimed for more than six months that he or she must forthwith pay that money to ASIC to be dealt with under Part 9.7 of the Corporations Act.

With regard to the liquidator’s position on s 544(1), his Honour held that:

• s 544(1) is merely a directory provision as to what should happen;
• it is quite appropriate for liquidators to delay if there is a good reason for doing so; and
• one good reason would be to make as many inquiries as is prudent in order to see that the money might go to its proper designation before troubling ASIC with having to hold it and manage applications for payment out.

Consequently, his Honour directed the liquidator to pay the held moneys to ASIC pursuant to s 544 of the Corporations Act, after one month from an advertisement, to be settled by counsel, permitting time for potential claimants to cash their cheques.

His Honour also identified that there would be some costs involved in the directed advertisements.  His Honour directed that the liquidator pay any advertising expenses out of the accumulated interest which had accrued over the eight years while the moneys had been held.  His Honour noted that the cheque holders would not be able to claim any interest component in any event as the cheques could only be cashed for face value.

Liquidator’s additional remuneration

His Honour posed four questions in relation to the liquidator’s application:

• What is the Court's power in a members' voluntary winding up to increase the liquidator's remuneration?
• What is the significance of the fact that the remuneration was approved when the liquidator was appointed, presumably with his consent?
• Is the amount sought by the liquidator reasonable?
• Should the Court approve one company being directed to pay the whole of the remuneration?

In answer to these respectively, his Honour: 

• Held that the Court has broad powers under s 511 of the Corporations Act to determine any question arising in the winding up of a company, including any increase in the liquidator’s remuneration (considering Re: Walker [2005] NSWSC 557).
• Held that s 504 of the Corporations Actgives the Court power, on the application of a liquidator, to review and vary the liquidator’s remuneration notwithstanding that it is fixed by contract.  The Court’s discretion is guided by s 504(2), which lists a series of factors to be considered in determining the reasonableness of the liquidator’s remuneration in the circumstances.
• Acknowledged the difficulty of determining what is the reasonable remuneration of the liquidator.  To avoid the expense of an expert report, he determined to remit the task to the Registrar of the Supreme Court to report on the reasonableness of the remuneration claim and whether it was “within the ballpark” of what is reasonable according to the practice that she uses when fixing remuneration of liquidators.  Subject to the Registrar’s report, his Honour determined that the remuneration sought was reasonable.
• Reasoned that work to be done in the liquidation of one of the companies would be beneficial for the other companies and that it would be “just and beneficial” that the costs of the liquidation be borne by the companies with sufficient funds, particularly in the absence of any objection to the higher remuneration.

Lavan Legal comment

Westnet WA Infrastructure Holdings Limited [2015] NSWSC 658 provides comfort for liquidators in fixed remuneration appointments.

First, it exemplifies the flexibility in the Court’s approach and the scope of possible directions that can be made under s 511 of the Corporations Act to accommodate a unique factual scenario.

Second, it is a reflection of the pragmatism of the courts in appreciating that appointments often do result in unanticipated complexity and delay and, consequently, should not be subject to inflexible application of the law.