Andrew Lacey
Managing Principal
The recent Full Court of the Federal Court of Australia decision of Templeton v Australian Securities and Investment Commission [2015] FCAFC 137 has considered the application of ‘proportionality’ in determining receivers’ remuneration.
It is necessary for receivers and managers appointed pursuant to a court order to apply to the court for approval of their remuneration, pursuant to section 425 of the Corporations Act 2001. Section 425(8) of the Corporations Act 2001 stipulates what the court must consider in determining the reasonable remuneration of receivers; the concept of proportionality is not dealt with in the legislation.
In 2010, several unregistered managed investment schemes were wound up in insolvency. Subsequently, in 2013, the Court appointed Mr Templeton and Mr Hennessy of KPMG as the receivers (Receivers) of those companies.
The Receivers sought approval for their remuneration, costs and expenses in the amount of $4,309,813.79. In March 2014, Registrar Luxton fixed the Receivers’ remuneration, costs and expenses at $3,764,738.39 being a reduction of about 13%. The Receivers sought a review of Registrar Luxton’s decision. On review, Gordon J upheld the Registrar’s decision.
The Receivers appealed the decision of Gordon J to the Full Court of the Federal Court of Australia.
The Receivers’ work, the subject claim was grouped into four categories:
In an unreported decision, Registrar Luxton reduced the Receivers’ remuneration in relation to Investors/Distribution by 20%, reduced all other remuneration and disbursements by 5% and applied a 2.5% reduction to the claim for legal fees.
In approving Registrar Luxton’s determination Gordon J provided the following reasons:
The Receivers raised several grounds on appeal. The key issue considered by the Full Court was the importance of proportionality in assessing reasonable remuneration.
Proportionality
On appeal, the Receivers argued that reasonableness of remuneration ought to be determined solely by the reasonableness of time spent and the rates charged. They further stated that proportionality should not be a consideration in assessing reasonableness.
The Full Federal Court held that the Receivers’ conception of proportionality was too narrow and proportionality should not be excluded.
The court held that:
Although the full Federal Court held that proportionality should be considered in determining reasonable remuneration, it was held that Gordon J erred in her application of proportionality. Her Honour justified the 20% reduction by comparing the $10.9 million in the Investor / Distribution category to the total $4 million claimed. It was held on appeal that her Honour should have compared the distributions made in the Investor/Distribution category to only the amount claimed for that category, being $2,369,274.50. Her Honour therefore did not make a like with like comparison as required by the concept of proportionality.
Successful grounds on appeal
Delay
Gordon J reduced the Receivers’ remuneration because of the length of time taken for the proof of claim process to begin. It was held on appeal that the reduction was not justified. Any reduction could only be justified by linking it to an increase in work or an increased level of inefficiency that absent delay would not have been needed or would not have occurred. This link was not made and therefore reduction due to delay should not have been made.
Inefficiency
In relation to the adjudication process made for each investment, Gordon J held that the amount claimed was too high and that the adjudication plan (review of each investment as above) should have been kept under review and made more efficient over time. On appeal, it was held that the Gordon J was in error. The Receivers had uncontested evidence as to the methods of adjudication and the reasons for using these methods. There was no evidence of another more efficient method.
Unsuccessful grounds of appeal
Absence of findings
It was asserted by the Receivers that Gordon J erred in finding that the amount claimed for adjudication of claims was too high because she needed to make specific findings about the work necessary and appropriate to be done, the appropriate level of seniority to complete the work and that the work was done efficiently. Although a lack of detail was provided in her reasons even if sufficient detail was provided, there is not a requirement to “drill down and make detailed findings.” This would be “neither sensible nor cost effective for the court.” It is more practical, as her Honour did, to look at the matter more generally.
Receivers 10% voluntary reduction
It was submitted that the 10% reduction should have been given greater significance. The 10% reduction was made to the total of every unit billed to the matter. Gordon J held that a review of work charged to the file is always necessary and although discounts are not discouraged, they should be made on an informed basis after review, identification of the real claim and justification of the amount being claimed.
It was held on appeal that Her Honour did take into account the nature of the time sheets, gave the voluntary discount appropriate weight and was entitled to use the starting point of the claim after the 10% discount had been applied.
The other grounds of the Receivers’ appeal were not considered by the Full Federal Court because it had already been decided that her Honour’s decision was to be set aside.
It is clear from this case that when the courts determine reasonable remuneration of receivers, the concept of proportionality will be applied.
For receivers, this means that all work undertaken must be appropriate having regard to the prospective benefit of the work and the size of the activity. If receivers spend significant amounts of time on an activity that cannot provide a significant return, the courts will likely discount the remuneration sought for that activity.
It is also important that receivers delegate tasks to staff of appropriate seniority and review time entries to ensure they reflect precisely the task undertaken.
Undergoing constant review of time spent on activities will assist receivers in having the majority, if not all, remuneration approved by the courts.
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This article was written by Andrew Lacey, Principal, Carl Hagon, Senior Associate and Kate Hollings, Lawyer.
This article is not legal advice. It is intended to provide commentary and general information only. Access to this article does not entitle you to rely on it as legal advice. You should obtain formal legal advice specific to your own situation. Please contact us if you require advice on matters covered by this article.