In a recent Federal Court decision, Allianz Australia Insurance Limited paid Brighton Hall Securities Pty Ltd (in liquidation) (Company), an amount in settlement of the Company’s liabilities to third parties arising from a professional indemnity insurance policy (Insurance Proceeds).
The liquidator of the Company sought directions from the Court as to how the proceeds under the insurance policy should be dealt with, and more particularly, whether the liquidator was entitled to deduct from the Insurance Proceeds his own expenses incurred, including remuneration, in distributing the Insurance Proceeds to the rightful claimants.
The Court determined that there was no dispute that the liquidator was entitled to deduct from the Insurance Proceeds the costs of and incidental to distributing the Insurance Proceeds to the rightful claimants. The main issue of contention was whether remuneration could be deducted from the Insurance Proceeds.
Where an insurance policy is concerned, the distribution regime outlined in section 556 of the Corporations Act 2001 (Cth) (Corporations Act) is overridden by section 562. That section provides that, where a company is, under a contract of insurance, insured against liability to third parties, then, if such a liability is incurred by the company and an amount in respect of that liability has been or is received by the company or the liquidator from the insurer, the amount must, after deducting any expenses of or incidental to getting in that amount, be paid by the liquidator to the third party in accordance with section 556.
The costs and expenses associated with “getting in” of the funds had already been incurred. The issue before the Court was the work with respect to the liquidator analysing the claims. The liquidator, in effect, argued that the term “expenses” in the context of section 562 of the Corporations Act, was broad enough to encompass costs and charges by way of disbursements and actual remuneration. ASIC opposed the argument advanced by the liquidator submitting that “expenses” should be limited to disbursements.
The Court agreed with the liquidator, that he was entitled to fair remuneration through at least one of two mechanisms:
Equity recognises that there is a right to an indemnity for costs and expenses incurred by officers (including liquidators) secured by an equitable lien. The Court held that because the claimants will receive a benefit which they would be unlikely to receive had it not been for the labour of the liquidator, the liquidator should be entitled to be remunerated for conferring this benefit on the claimants.
The Court found that the word “expenses” included remuneration (and fees for services) as “there is no obvious reason why expenses in this context (within section 556 CA) would not include fees for services and remuneration”.¹ It follows that the interpretation of “expenses” in section 556 of the Corporations Act should be applied to section 562 of the Corporations Act.
Lavan Legal comment
Liquidators can pursue and distribute the insurance entitlements of a company with confidence that they will be properly remunerated for their professional time in doing so. It is important that liquidators keep separate files for time recording when dealing with the distribution of insurance proceeds so they can easily demonstrate the specific work associated with the getting in of the insurance proceeds.¹ Brighton Hall Securities Pty Ltd (in liq)  FCA 970 at 160.