20 February 2006
Deed administrators will be able to have their remuneration approved in advance, under a system approved by the Federal Court on Thursday.
The Court's decision addresses some of the issues raised by the Stockford case in 2004.
Background
This was a test case brought by the IPAA to try to overcome part of the problems caused by the Stockford case.
In Stockford, Justice Finkelstein cast doubt on the ability of a section 439A meeting to fix a deed administrator's remuneration in advance. This test case involved a proposal that, it was argued, overcame Justice Finkelstein's objections. Those objections were:
The new proposal
In Gidley, in the matter of Alliance Motor Body Pty Ltd [2006] FCA 102, the section 439A meeting passed a resolution in the following terms:
"That the remuneration of the Deed Administrator be approved up to a limit of $30,000.00 plus GST in the amount of $3,000 on a time basis at hourly rates outlined in Lawler Partners guide to hourly rates. Disbursements are additional."
The firm's scale of fees was attached to the administrator's report to creditors. It apparently specified a single hourly charge rate for each staff classification.
Stockford overcome
Justice Gyles held that the remuneration proposal overcome the objections in Stockford.
To begin with, he held that section 449E contemplates the prospective fixing of remuneration. Then he said:
"[T]here is no escape from the conclusion that, if remuneration is to be fixed prospectively, it may be fixed by reference to a formula based upon time, provided that the formula is objective enough to satisfy the tests laid down by the High Court [in Fraser Heleins v Cody (1945) 70 CLR 100 and other wartime regulation decisions]. That is the ordinary and natural meaning of the provision."
He then examined the proposed scale in this case:
"The resolutions in question in this case are capable of objective application. All of the necessary elements can be objectively identified. The person doing the work, that person's category and the period spent are all the elements required. The sum can be calculated or ascertained definitely."
ASIC had objected that this would still allow the administrator a lot of leeway (deciding what work should be done, who should do it, etc). Justice Gyles' response was that anyone aggrieved by the administrator's fees was free to apply to the court for a review under section 449E(2).
The cap
As well as setting a fixed scale for the administrator's hourly rates, the creditors' resolution set a cap on the total fees that the administrator could charge.
Justice Gyles said that the cap was not relevant to the issue of whether the remuneration could be fixed prospectively, although it might be relevant to reasonableness if anyone subsequently challenged the administrator's remuneration under section 449E(2).
Comment
Ever since Stockford, administrators have been looking for ways to have their remuneration fixed without having to convene a full meeting of creditors. As Justice Gyles noted, this has led to section 447A receiving a real workout over the last 12 months - something which he didn't think had been intended by the legislators.
This decision provides a way of working around Stockford that avoids unnecessary trips to court. However, it should be remembered that the Government's proposed insolvency law reform Bill is waiting in the wings. It does promise to "allow creditors, a committee of creditors or the court increased flexibility to approve remuneration." At the same time, however, the Bill may also raise new barriers to administrators' attempts to secure their remuneration:
"To address concerns about the costs of external administrations, practitioners will be required to provide additional information about the basis of a remuneration proposal when seeking agreement from creditors or the court. This information should be sufficient to enable the approving party to assess the remuneration as reasonable in accordance with a range of specified factors."
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