Thinking | 16 May 2018
Challenges to court-appointed receivers’ remuneration
Say Enterprises has successfully challenged a claim by its former receivers and managers seeking approval of their remuneration in the sum of $94,242.79 and that they be justified in paying disbursements, the most significant of which was $35,831.64 of legal fees.
The receivers were in office for just over 5 weeks. Say Enterprises argued that that the work undertaken by the receivers was unnecessary and that the amount sought was unreasonable. Ultimately, the Court agreed, and fixed the receivers’ remuneration at $60,500, with no order for the reimbursement of legal fees.
The proceedings were heard by Justice Brereton on 30 October 2017 in the Supreme Court of New South Wales. In this case, receivers were appointed as interim receivers and managers to secure the Company’s bank accounts and trading operations. Their appointment lasted just 31 days.
In that time, the receivers carried out extensive work including securing the Company’s assets, investigating the status of the Company’s contractors, sales practices and compliance with laws, negotiating with the parties and their legal representatives in an effort to resolve the underlying dispute and considering a sale of the business.
In addition, the receivers retained their own solicitors to advise in relation to the receivership generally and to assist in making an application to the court for directions in respect of certain steps proposed to be taken in the receivership.
Factors for determining receivers’ entitlement to costs
His Honour said that the essential question was whether a substantial part of the work done by the receivers for which they claimed remuneration was reasonable performed pursuant to their appointment.
Receivers are entitled to the costs, charges and expenses properly incurred in the discharge of their ordinary duties, or in the performance of extraordinary services that have been sanctioned by the Court. What this includes will depend on the facts of the case, and the receiver bears the onus of justifying reasonableness.
In this case, the receivers had all the powers set out section 420 of the Corporations Act 2001 (Cth) (Act). However, His Honour said that it did not follow that that it was necessarily reasonable to invoke them. His Honour said that, by analogy, the task of determining what amounted to ‘reasonable’ work and remuneration involved consideration of the factors set out in section 425(8) of the Act. These factors have an overarching theme of proportionality.
His Honour found that, in the context of an interim appointment, the receivers’ function was to preserve the status quo. The receivers’ primary objective was to secure the assets of the Company and this was substantially, if not entirely, achieved within 2 days of their appointment. As interim receivers, they should not have acted on the assumption that they would remain in office any longer than was provided by the interim orders, and they were justified in undertaking only such work as was reasonably necessary to enable them to carry on the business for the period fixed by the Court.
His Honour found that absent the Court’s direction to do so, it was not within the scope of the receivers’ function to undertake an extensive investigation into the affairs of the Company, such as a liquidator or even provisional liquidator might, let alone to explore the sale of the Company’s business. The receivers should not have retained solicitors to make an application for directions and to have conferred on them powers under section 420 of the Act, which the Act already gave them. Nor was it any part of their functions to act as a mediator or to intermeddle in the underlying dispute between the parties.
Moreover, his Honour found there was significant redundancy or duplication of work, with two of the receivers and their manager all being involved in meetings or attending Court. Further, a significant amount of administrative work was performed by senior staff when it ought to have been performed by a secretary.
Only in exceptional circumstances should receivers retain their own legal representative
In addition, his Honour indicated that the receivers could not claim costs for retaining a separate legal representative. Only in exceptional circumstances can a receiver intermeddle in litigation and be entitled to costs for that work done. Should the receiver require counsel on the legality of certain matters, it should refer to the solicitor supervising the receiver or apply to the Court for guidance.
His Honour went on to say that applications to the Court should generally be made by the persons beneficially interested and not by the receiver. This ensures the receiver remains at arm’s length and avoids the risk of the receiver being charged with costs personally.
His Honour fixed the receivers’ remuneration at $60,500, finding that the amount claimed in excess of that was unreasonable. Moreover, his Honour refused to make an order for the reimbursement of legal fees.
This case serves as a reminder that receivers must ensure that their actions fall within the scope of their appointment. Where there is uncertainty, receivers should seek the guidance of supervising solicitors or the Court. The Court will not accept excessive claims for remuneration where the work done was unreasonable or unnecessary.
Say Enterprises Pty Ltd  NSWSC 396
Hall & Wilcox represented Say Enterprises in this matter.
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