Federal Court fixes liquidators’ remuneration for winding up three Adelaide companies and orders them to repay $1.9m plus interest and ASIC’s costs

On 12 June 2019, Justice Besanko of the South Australian Division of the Federal Court of Australia fixed remuneration sought by Adelaide liquidators John Sheahan and Ian Lock of Sheahan & Lock, for the voluntary administration and liquidation of SK Foods Australia Pty Ltd (in liquidation), Cedenco JV Australia Pty Ltd (in liquidation) and SS Farms Australia Pty Ltd (in liquidation) (collectively ‘the companies’). His Honour’s judgement is here.

Remuneration was fixed at $3.9 million compared to the $5.8 million sought by the liquidators, a reduction of $1.9m (33%). In addition, his Honour also ordered the liquidators to repay this difference to the companies. His Honour also ordered that the liquidators must pay interest on the monies repaid from the date the fees were originally drawn to the date of repayment. Interest to be at the Court’s interest rates in GPN-INT.

ASIC intervened in the matter in 2015 following concerns about the level of remuneration sought and the volume of work undertaken. ASIC was also concerned about the hourly rates charged.

Besanko J noted that ‘…it is difficult for me to see how there could have been a proper review of the plaintiffs’ remuneration without the substantial role played by ASIC.’

His Honour ordered that the liquidators were to bear their own costs and were required to pay ASIC’s costs (taxed if not agreed) without any right of indemnity from the companies.

Background

The liquidators were appointed voluntary administrators in 2010 and subsequently appointed liquidators of the companies. The liquidators recovered surplus funds from receivership appointments over the companies that were sufficient to pay all creditors in full plus interest and make distributions to shareholders. Apart from these surplus funds, the liquidators only other recoveries were taxation refunds.

ASIC was concerned about the remuneration sought of in excess $5.8m given the work that was undertaken or should have been undertaken. Due to these concerns, ASIC intervened in the proceedings.

ASIC objected to the remuneration sought on the basis that the liquidators should not have undertaken certain ‘work streams’ or where the work was necessary, it was performed to a greater extent than required. ASIC also objected to the charge rates adopted by Sheahan & Lock, the amount of time charged to travel and the amount of work performed by senior staff.

On 11 February 2019, Besanko J refused to grant orders validating resolutions passed by creditors or shareholders approving or fixing remuneration in relation to the companies.

As an alternative to the validation orders, the liquidators sought orders under s449E and s511 of the Corporations Act approving or fixing their remuneration.

To commence the process of determining the remuneration claim, His Honour stated that the charge rates were excessive and ruled that the partner and manager rates were to be discounted by 20% and the senior manager rates discounted by 10%. Other charge rates were not to be discounted.

His Honour further determined that there would be additional reductions in remuneration related to identified work streams ranging from 0% up to 65% depending on His Honour’s view of whether the work stream was necessary, or the extent of the work undertaken was necessary.

His Honour raised some key issues for registered liquidators to consider, including:

  • work in progress / timesheet entries must be reviewed, preferably by the appointee, prior to seeking approval from creditors
  • when deciding whether to undertake a work stream, registered liquidators need to consider what the benefit to stakeholders will be prior to undertaking the work
  • where stakeholders express a view to not pursue a particular line of enquiry or work stream, the registered liquidator needs to justify why they would continue that work stream
  • work plans should be used to manage each work stream
  • remuneration for preparing non-compliant remuneration reports would not be permitted to be approved/drawn
  • narrations in timesheets need to be sufficiently descriptive to allow determination of which work stream or task the time related.

On 1 May 2019, the liquidators and ASIC made submissions to the Court regarding interest on any monies to be repaid and on costs.

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