This week’s TGIF looks at the decision of the Supreme Court of Victoria in Re Barokes Pty Ltd (in liq)  VSC 555, where liquidators sought approval of their remuneration application despite various objections by the majority shareholder and majority creditor by value. In considering the liquidators’ remuneration application, the Court considered that the various allegations about the liquidators’ conduct would not be taken into account in the remuneration determination.
- Liquidators’ remuneration applications are a summary procedure, and will not be used to inquire into the liquidator’s conduct. Rather, the Court will assess whether a liquidator’s fees are reasonable and determine what those fees should be. This has not changed under the Insolvency Practice Schedule (Corporations) (Schedule 2 of the Corporations Act) (Practice Schedule). In fact, there are other provisions within the new statutory regime more suited to ventilating conduct issues.
- The Practice Schedule introduced the concept of work being ‘necessary and properly performed’ as a new factor under s 60-12(a). Work that is ‘properly performed’ is work done efficiently, satisfactorily and competently. It must also have a bona fide connection to the functions and duties of a liquidator. It does not open up an inquiry into the liquidator’s conduct.
- An objecting party may still be able to ventilate alleged unsatisfactory conduct, misconduct or impropriety under other provisions of the Practice Schedule – for example, by an inquiry under section 90-10 or by review of the liquidator’s decisions under section 90-15.
Barokes Pty Ltd (in liquidation) (Company) was a Melbourne-based company that developed and sold ‘wine in a can’ products internationally, with a patented packaging system called ‘Vinsafe’ enabling wine to be stored in a can.
Liquidators were appointed in late 2018 after extensive litigation between its shareholders. The Company was involved in litigation around the world, including proceedings against its majority shareholder (Daiwa Can Company) for patent infringement and an application by Daiwa to invalidate the patent. Daiwa commenced winding up proceedings in Australia on the just and equitable ground.
The liquidators ran a sale process for the Company’s business in early 2019. Daiwa made several offers but was ultimately unsuccessful in attempting to purchase that business. The successful purchaser’s director was, the Court noted, also a director of the Company and associated with one of the minority shareholders. Daiwa was aggrieved by this outcome and contended that the liquidators failed to consider a further offer.
The liquidators’ remuneration application
In early 2020, the liquidators brought an application to the Court for approval of their remuneration pursuant to section 60-10 of the Insolvency Practice Schedule. The application was necessary as the liquidators’ remuneration had been opposed at the creditors’ meeting by Daiwa (the largest creditor by value).
Daiwa objected to about 50% of the liquidators’ remuneration by reference to concerns it held about the liquidators’ conduct, particularly:
- the conduct of the Japanese litigation involving Daiwa; and
- the sale process for the Company’s business.
Issues for the Court
- Whether Daiwa’s concerns regarding the sale of Barokes’ business and conduct of litigation is relevant to the Court’s assessment of the liquidators’ remuneration application?
- In relation to s 60-12(a), to what extent was the work by the liquidators ‘necessary and properly performed’ for the purposes of s 60-12(a) of the Practice Schedule ?
What did the Court decide?
Hetyey AsJ held that the Court’s function in a remuneration application is solely to assess whether an external administrator’s fees are reasonable and to determine what those fees should be. It is not a forum to inquire into the conduct of an external administrator, nor should it be used as a mechanism to discipline or punish an external administrator.
As the remuneration assessment procedure is a summary one – allegations of misconduct, misfeasance or breach of duty need to be properly tested through evidence, and natural justice afforded to the external administrator.
Ultimately, it was held that whether work is ‘necessary and properly performed’ is but one of a number of factors which a Court may have regard to in assessing the reasonableness of a remuneration claim.
Hetyey AsJ held that the phrase ‘properly performed’ goes to the manner and quality of the work undertaken by the external administrator, rather than an evaluation of their conduct in performing that work.
In the current context, work ‘properly performed’ is work that is done efficiently, satisfactorily, and competently. The work must also have had a bona fide connection to the functions and duties of an external administrator. Hetyey AsJ considered that it is important to allow external administrators a measure of latitude and discretion when considering the relationship between the work performed and the role of the external administrator.
On the other hand, the Court may also find that certain work performed was inefficient, unsatisfactory or lacking in competence. Where work is not sufficiently related to the discharge of the external administrator’s function, that work may not be allowed as part of a remuneration claim.
Ultimately the Court applied a global discount of 3.5% (less than $5,000) having regard to specific considerations such as scope for delegation and isolated time entries.
Liquidators’ remuneration can be controversial. This year the NSW Supreme Court approved the latest portion of ‘eye-watering’ remuneration of $26.44m in Octaviar and encouraged the liquidators to reallocate staff to other liquidations as soon as practicable. Currently there are fewer ‘other liquidations’ being commenced than there were last year, as a result of the recent extension of temporary relief.
Sometimes a liquidator’s remuneration is paid because the likelihood or uncertainty of any reduction is outweighed by the cost of challenging the remuneration (which may have occurred in this week’s case) or if there is a forensic reason to pay the full amount without argument (for example, if seeking to terminate a winding up).
This week’s case is a useful guide to the principles a Court may have regard to in considering liquidator remuneration applications under the Practice Schedule.
Courts in other States may of course take different approaches. In previous years liquidators have had substantially better prospects obtaining remuneration approval in Victoria than in New South Wales, although this may have balanced in recent years.
Whilst the case helpfully highlights that the remuneration application process is a summary procedure, liquidators should be reminded that objecting parties may still pursue proceedings, albeit through different procedures.
 Knights Quest Pty ltd v Daiwa Can Company  VSC 426; Re Barokes Pty Ltd (in liq)  VSC 555 at .
 In the matter of Octaviar Administration Pty Ltd (in liq)  NSWSC 927, Rees J at  and .
 ASIC’s Australian Insolvency Statistics, released 6 October 2020; and Joint Media Release from the Hon. Josh Frydenberg MP and the Hon. Christian Porter MP, ‘Extension of Temporary Relief for Financially Distressed Businesses’, 7 September 2020 that the temporary insolvency relief provided under the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) would be extended from 25 September 2020 to 31 December 2020.
 Last week’s TGIF may provide an example: In the matter of Spartan Pastoral Company Pty Limited (in liquidation)  NSWSC 1218, Black J at -.
 Steele, Chen and Ramsay, ‘An empirical study of Australian judicial decisions relating to insolvency practitioner remuneration’ (2016) 24 Insolv LJ 165 at 177-178 (Table 6): “The rate of approval of amounts as claimed by practitioners is substantially lower in New South Wales at 25% compared to other jurisdictions where typically half the claims were approved in the amounts sought”.
 Sanderson as Liquidator of Sakr Nominees Pty Ltd (in liquidation) v Sakr  NSWCA 38; 93 NSWLR 459.
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