Out of step but not out of pocket: remuneration still recoverable for work done by invalidly appointed administrators and liquidators

This week’s TGIF considers the case of Kreab Gavin Anderson (Australia) Ltd, in the matter of Kreab Gavin Anderson (Australia) Ltd (No 3) [2017] FCA 1473 and an application for approval of remuneration for work carried out by the applicants as administrators and then liquidators of the plaintiff company, in circumstances where those appointments were subsequently found to be invalid.

WHAT HAPPENED?

In December 2016, by a resolution of the directors, Simon Thorn and Bradley Tonks (the applicants) were appointed voluntary administrators of Kreab Gavin Anderson (Australia) Ltd (Kreab).

Following their purported appointment as administrators, the applicants took control of the business. They attempted to sell the business as a going concern and also endeavoured to promote a management buy-out, however, neither venture was successful.

The applicants proceeded to conduct investigations into the affairs of the company and provided reports to creditors. At the second meeting of creditors on 18 January 2017, they were appointed joint and several liquidators of Kreab.

As Kreab was a foreign company registered under Division 2 of Part 5B.2 (Registerable Bodies; Foreign Companies) of the Corporations Act 2001 (Cth), the provisions of Part 5.3A of the Act (dealing with the administration of a company's affairs) did not apply to it. As such, the purported appointments of the applicants as administrators and then liquidators of the company were both invalid.

By order of the court on 21 February 2017, the applicants were subsequently appointed as provisional liquidators (See Kreab Gavin Anderson (Australia) Ltd, in the matter of Kreab Gavin Anderson (Australia) Ltd [2017] FCA 300).

The applicants applied to the court for approval of their remuneration:

1. as provisional liquidators from 21 February 2017 to 24 March 2017; and
2. as voluntary administrators and liquidators of Kreab from 6 December 2016 to 21 February 2017 (totalling $111,780), despite those appointments being invalid.

THE DECISION

The court accepted that on the evidence, it was clear that the applicants had proceeded on the basis that they had been validly appointed as both administrators and then liquidators of the company.

In considering whether the applicants were entitled to the remuneration claimed, the court looked to general law principles but noted that there has been no uniform application of principle when considering whether and in what circumstances invalidly appointed administrators and liquidators can claim remuneration for work performed.

After tracing through a number of cases on the issue and noting a line of authority suggesting remuneration may be payable on a quantum meruit basis, the court decided that the balance of authority favoured the proposition espoused in Monks v Poynice Pty Ltd (1987) 8 NSWLR 662. That is, where services provided have conferred incontrovertible benefit on the company and it would be unconscionable for the company to retain the benefit without paying reasonable remuneration, such remuneration should be paid.

Applying this principle, the court held that in the present case, no reasonable person could hold the view that the work of the applicants was to go unremunerated.

Although noting that not all services will be considered to have been of “incontrovertible benefit” to the company, the court found that upon review of the applicants’ time records, all work performed by the applicants in this case (save for some “trifling matters”) was of incontrovertible benefit to Kreab, and that they should thus be reasonably remunerated accordingly.

COMMENTS

The decision should provide comfort to practitioners that they will not necessarily be forced to wear the costs of the work they have performed in circumstances where there may be some irregularity rendering their appointment invalid.

That being said, practitioners in this situation should be mindful that they are not automatically entitled to be remunerated for all services they have provided; they may still stand to be out of pocket, depending on the work performed.

Unfortunately, the court declined to give any clear guidance as to exactly what type of services may not be considered to be of “incontrovertible benefit” to a company. In the case of Monks, the receiver’s claim to reasonable legal expenses occurred in obtaining advice about the validity of the appointment was denied on the basis it was not of incontrovertible benefit to the company.

In any event, it seems likely such a matter is to be determined on a case-by-case basis.