Court ordered remuneration: what will you receive[r]?

Kerr, in the matter of Angel’s Castle Pre-School Pty Ltd (in liquidation) (No.2) [2012] FCA 57 (Proceedings)

Background

Mr Kerr (Kerr) was the appointed liquidator for Angel’s Castle Pty Ltd (Company).  In his investigations into the affairs of the Company, Kerr discovered uncertainty as to whether the land, business and assets of the business were held by the Company beneficially or as trustee for GGS Girgin Family Trust (Trust).  Kerr’s successful application in Kerr, in the matter of Angel’s Castle Pre-School Pty Ltd (in liquidation) [2010] FCA 786 (2010 Proceedings), saw him appointed as receiver and manager of the assets of Trust to ensure that he was in a position to convey secure title of those assets.

These Proceedings

In the Proceedings, Kerr sought orders from the Court, in his capacity as receiver and manager of the Trust that he be:

• discharged and released from acting as receiver;
  
  
• granted leave to dispense with the requirement that he pass his final accounts; and
  
  
• paid remuneration for acting as receiver of the Trust.

Kerr sought to be discharged from acting as receiver on the basis that the object of the receivership had been achieved.  Campbell J held in Lunn v Savage¹ that ‘a court-appointed receiver can be discharged when the object of his appointment has been fully effected’.  In accordance with this authority, the Court held that it was reasonable that Kerr be released from acting as receiver.  The principle reasons were that the property and business of the Trust had now been sold, pre-appointment creditors no longer existed and all of the receivership liabilities had been satisfied.

As to the issue of the second order sought, Order 14.25 of the Federal Court Rules 2011 (Cth) requires a receiver to pass final accounts before being discharged and released by the Court.  However, the case law has shown a tendency for the courts to ‘dispense with the requirement of passing final accounts where the cost of following formal procedure outweighs any benefit from doing so.’²  In these Proceedings the Court followed the reasoning in Ide v Ide (2004) 184 FLR 44 where, ‘The gross assets of the receivership are minimal and the parties are not wealthy…any benefit obtained by adhering to the standard procedure is outweighed by the significant costs and time involved.’³

Finally, the court approved Kerr’s claim for remuneration, subject to a minor amendment.  The Court looked to Barrett J’s summary of the principles in Mohamed & Anor v Hurstville Tower Medical Clinic Pty Ltd (in liquidation) & 9 Ors [2006] NSWSC 4 (Mohamed) as follows:

1. the court constituted by a judge never considers a review of quantum, but only matters of principle;
   
   
2. a receiver is entitled to have his or her costs, charges and expenses properly incurred in the discharge of his or her ordinary duties or in the performance of extraordinary services that have been sanctioned by the court;
   
   
3. the receiver must justify the reasonableness and prudence of the tasks undertaken for which remuneration is sought.  The relevant onus is on the receiver;
   
   
4. a receiver’s remuneration is not in the same category of costs.  The receiver is making application for a fair recompense for what he or she has actually done;
   
   
5. the court’s objective is to award a sum or devise a formula which will reasonably compensate the receiver for the time and trouble expended in the execution of his duties and, to some extent, the responsibility he or she has assumed;
   
   
6. the court will usually work off time sheets created in the receiver’s office provided that they do significantly more than merely detail the total number of hours spent by the receiver and officers of particular grades on his or her staff; and
   
   
7. the court is guided by professional scales of charges, with emphasis on the broad average or general rate charged by persons of the relevant status and qualifications who carry out the relevant type of work.

Lavan Legal comment

In approving Kerr’s claim for remuneration, the Court intentionally highlighted the importance of principle 6 of those outlined above.  His Honour noted that the:

receiver’s records demonstrate that the timesheets do significantly more than merely detail the total number of hours spent by the receivers…[t]he documents…contain a breakdown of the tasks that were undertaken by a particular member of staff, and the time taken in carrying out the work which is described in the time sheets⁴.

This decision, along with Mohamed, is consistent with the principles outlined in part 15.3.3A of the Code of Professional Practice for Insolvency Practitioners.⁵

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