Insights / October 12th, 2015

The Full Court confirms application of proportionality

The decision confirms that the concept of proportionality is one approach the Court can take in assessing the reasonableness of insolvency practitioners’ remuneration, costs and expenses. Accordingly, a Court called on to determine the level of a practitioner’s remuneration, costs and expenses may assess and review the amount, nature and value of the actual work undertaken against the amounts claimed.


Between February and July 2010, ASIC obtained orders winding up 21 unregistered managed investment schemes and 52 associated companies. Damian Templeton and Philip Hennessy of KPMG (“Receivers”) were appointed as joint and several receivers and managers of certain property of the schemes and the companies.

Under each order appointing the Receivers, the Receivers were:

“… entitled to reasonable remuneration and reasonable costs and expenses properly incurred in the performance of their duties and the exercise of their powers as receivers and managers …as may be fixed by the Court on the application of the Receivers, such sum to be calculated on the basis of the time reasonably spent by the [receivers and managers], their partners and staff, at the rates specified in Annexure B to [this Order]…”

Annexure B to each of the orders appointing the Receivers contained a schedule of charge out rates.

On 17 June 2013 the Receivers filed an application seeking approval for their remuneration, costs and expenses for the period 1 January 2012 to March 2013 under seven categories of work claiming a total of $4,309,813.79.

On 17 March 2014, a Registrar of the Federal Court fixed the Receivers’ remuneration, costs and expenses at $3,764,738.39. The Registrar applied a percentage reduction of:

  • 20% for remuneration for one of the seven categories of work being the “Investors/Distribution” category;
  • 5% for all other work; and
  • 5% for the claim to legal fees (excluding legal disbursements).

On 28 March 2014 the Receivers applied for a review of the Registrar’s determination and sought an order fixing the remuneration at $4,309,813.79.

On 12 September 2014 the primary judge dismissed the application for review and the Receivers appealed to the Full Court against that order.

The decision of the Full Court

The Full Court allowed the appeal of the Receivers.

  1. The first consideration for the Full Court was whether the concept of proportionality applied to assessing the reasonableness of the remuneration, costs and expenses incurred. It was submitted by the Receivers that the primary judge ought not to have considered the question of proportionality.

    The Full Court held that the primary judge was entitled to consider the question of proportionality as between the amount, nature and value of work claimed in respect of the “Investors/Distribution” category and stated at [39] that:

    …whatever the methodology, like must be compared with like. If proportionality is to be assessed in respect of remuneration incurred for a category of work, the size, nature and value of that work is to be weighed against the remuneration claimed for that work.

    The Full Court emphasised that the question of proportionality is one way to proceed rather than the required way to proceed. At [32] of the decision the Full Court stated:

    The question of proportionality in terms of work done as compared with the size of the property or activity the subject of the insolvency administration or the benefit or gain to be obtained from the work is an important consideration in determining overall reasonableness.

    The Full Court then referred to a number of decisions of the Federal Court of Australia, New South Wales Supreme Court, and the United Kingdom in support of this proposition.

  2. The Full Court then considered whether, if the question of proportionality is to be considered, the primary judge had erred in her application.

    The primary judge compared the total amount to be distributed of $10.9m against the claimed remuneration, costs and expenses of the Receivers of $4m. The Full Court stated that what should have occurred was the amount of the remuneration for work done in the Investor/Distribution category, in the sum of $2.3m, should have been compared to the amounts distributed.

    The primary judge referred to the amount of $14.2m received by the Receivers compared to the distributions made of $10.9m. The Full Court stated that although the primary judge was able to look at the total remuneration claimed for work done in all categories of work as compared to the value of work in all categories, the approach taken by the primary judge was not “comparing like with like” in considering the question of proportionality for the remuneration claim in respect of the Investors/Distribution category. The Full Court’s view was that the primary judge should have also taken into account the $92m realised on behalf of secured creditors if this overall approach was to be taken.

    Further, the Full Court identified that in undertaking a proportionality assessment, a relevant consideration is whether in performing certain work it may not be entirely clear what the precise benefit will be at that time. The Full Court commented at [52] that in realising an asset which turns out to be of little value it would be inappropriate to assess proportionality and reasonableness in hindsight based on the known returns. It may be that in some cases the work is sufficiently complex and labour intensive to justify a high cost/benefit ratio.

    The Court held at [53] that it was not demonstrated and explained how any part of the 20% reduction was justified by the primary judge under the proportionality criterion. Further, insufficient consideration was given to the fact that the Receivers’ programme of work was a function of the directions and orders of the Court and the complexity of the matter.

  3. The Full Court then considered whether the primary judge erred in partly justifying the 20% reduction based upon delay that had occurred between the date of pooling orders and the Receivers’ application for directions on distribution. The Full Court stated that for “delay to justify a reduction, it had to be linked to increased or additional work that, absent delay, would not have been needed, or an increased level of inefficiency in the performance of the work that would not otherwise have been the case.”

    The Full Court held that any delay was not explicitly linked to any inflated remuneration claimed or any inefficiency on the work performed and that the primary judge also did not explain what part of the 20% reduction applied was referable to delay.

  4. The primary judge took the view that the Receivers’ adjudication on each investor’s claim took too much time and that a more efficient process should have been used. The Full Court indicated that there was no evidence of any other more efficient process that would have reduced the time taken and that even if the primary judge’s conclusions had force, it was not explained how this justified some or all of the 20% reduction.

The Full Court’s overall conclusion was that the primary judge’s approach to proportionality significantly underpinned the reductions made and the Full Court was unable to perform a full analysis and make a determination based on the material before it.

The matter has now been remitted for rehearing to another judge to be considered afresh on all issues.


The Templeton case has made it clear that a proportionality approach is potentially open in any future Court setting of allowances of practitioners’ remuneration and expenses. As a consequence practitioners at the start and throughout appointments must be careful to have systems in place to record any work done in detail and whenever possible should seek to form a view as to the cost/benefit analysis of doing particular tasks in the circumstances of the appointment.

Cowell Clarke has significant expertise and experience in corporate insolvency law. If you need any assistance concerning any insolvency related queries, do not hesitate to contact us.

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