Just one of the myriad of changes brought about by the Insolvency Law Reform in 2017 was the ability to appoint a “reviewing liquidator” in Court Liquidations and Creditors’ Voluntary Liquidations. Broadly speaking a reviewing liquidator’s role is to review whether the fees and expenses being claimed by a liquidator on a liquidation are reasonable. There are other avenues for creditors to explore should they be concerned with a liquidator’s fees and expenses which we cover later on. But now onto reviewing liquidators…

Appointing a Reviewing Liquidator

A reviewing liquidator may be appointed in 4 ways:

  1. 90-23 IPS – By the court upon application of a creditor

This option will obviously involve an application to court and therefore possibly expensive legal fees.

  1. 90-23 IPS – By ASIC upon application of a creditor

Creditors need to complete and submit an ASIC Form 5605. This form has a small lodgement fee (currently $39) and can include information and documents supporting why a creditor is seeking a reviewing liquidator be appointed. You could probably provide the proposed reviewing liquidator’s Consent to Act and DIRRI as part of this application.

  1. 90-24(2) IPS – By “resolution” of creditors

A resolution is passed by creditors:

  • At a meeting (IPS 75-50(2)(k)); or
  • Without a meeting (IPS 75-40(5)(b)).

A meeting of creditors can be convened in the following ways:

  1. Creditors may direct a liquidator to do so by “resolution”.
  2. At least 25% in value of the creditors direct the liquidator to do so in writing.
  3. Between 10 and 25% in value of the creditors direct the liquidator in writing and provide security for the cost of holding the meeting.
  4. Between 5 and 25% in value of the creditors can do so within 20 business days of the winding up resolution being passed, as long as the creditors in question are not related entities.
  5. See 75-15 of the IPS for full details of the ability to request a Liquidator to hold a meeting of creditors.

Passing a resolution without a meeting can be done in the following way (75-130 IPR):

  1. A proposal must be put to creditors by the Liquidator pursuant to the terms of s70-40 of the IPS. The notice must include details of the proposal and the effect of the proposal if passed.
  2. A majority in number and value need to vote for the proposal (and less than 25% vote against).
  3. Only creditors who have submitted proofs of debt with supporting evidence which have been admitted for voting purposes by the liquidator can vote on the proposal.
  1. 90-24(4) IPS – By one or more creditors with the current Liquidator’s agreement.

One or more creditors may appoint a reviewing liquidator without need for a proposal when the liquidator agrees in writing with the appointment of the reviewing liquidator.

What does a Reviewing Liquidator do?

  • A reviewing liquidator may only review remuneration of the liquidator and/or an expense incurred by the Liquidator.
  • Can include an assessment as to whether the time costs and/or expenses are “reasonable” – s90-26 IPS.
  • Can seek court orders requiring production of certain documents from the liquidator – s90-28 IPS
  • Can only review:
    • Remuneration relating to a “remuneration determination” which was made in the 6 months prior to the appointment of the reviewing liquidator (90-7(2) IPR).
      • Remuneration determination is covered by s60-10 IPS and is essentially the date on which the liquidator receives fee approval. If the Liquidator received approval of 2 years’ worth of remuneration then the reviewing Liquidator can review the entire 2 years of remuneration, provided their appointment occurs within 6 months of the Liquidator receiving approval of the 2 years’ worth of remuneration.
    • 90-7(3) – cost or expense incurred in 12 month period prior to appointment of reviewing Liquidator, unless otherwise agreed with the liquidator for a longer period.
  • s90-22 IPR – powers of the reviewing liquidator:
    • Can engage one or more industry experts to assist with the review.
    • Interview any parties connected with the remuneration and/or expense subject to the review (including the Liquidator and their staff).
    • Can require the Liquidator to produce certain books or provide a written statement on any matters subject to review.
  • The reviewing liquidator then prepares a report detailing their review of the Liquidator’s remuneration.

Who Pays the Reviewing Liquidator?

If a reviewing liquidator is appointed other than by one or more creditors without a proposal, the costs are an “expense” of the winding up and hence will be paid from assets of the company.

If the appointment occurs by one or more creditors without a proposal then those creditors bear the cost of the reviewing liquidator.

Outcome of the Reviewing Liquidator’s Report

Depending on how the appointment occurred, the report prepared by the reviewing liquidator may be provided to the Court, ASIC, creditors, the original liquidator and/or tabled at the next meeting of creditors held in the liquidation.

There is no specific provision relating to the outcome of this report, however s90-15 of the IPS provides for the Court to make such orders as it thinks fit in relation to a liquidation. This means that the Court would be able to make an order in regards to a Liquidator’s remuneration if the reviewing Liquidator’s report casts serious doubt over the quantum of the remuneration claimed.  It may also be possible for informal negotiations to take place with the Liquidator in question in regards to amending the fees they will take/have taken based on the contents of the reviewing Liquidator’s report. There is also the option to use the report as a means to informally negotiate with the liquidator to lower the fees they will take or have taken.

Given there is no specific section relating to the outcome of a reviewing liquidator’s report (and there is therefore some doubt as to its effectiveness) you may be wondering if there’s a simpler and/or cheaper way to have a liquidator’s remuneration reviewed?

Other ways to address your concerns about a liquidator’s remuneration?

Broadly speaking, a creditor has the following options if they’re unhappy with the remuneration being claimed by a liquidator:

  1. Discuss your concerns with the liquidator. Perhaps there is a genuine reason for the high costs?
  2. If this achieves nothing you can vote against the liquidator’s remuneration proposals. You can also contact other creditors to see if they would like to vote against the resolutions as well.
  3. If the proposals are passed you can consider appointing a reviewing liquidator.
  4. Instead of appointing a reviewing liquidaor (or after receiving their report) you can consider applying to court seeking orders to limit the liquidator’s remuneration and expenses.
  5. If you are generally unhappy with the liquidator you can consider replacing them.

Our partners at Pearce & Heers have recently outlined the options available to creditors that want to replace a liquidator here.

If you are a creditor in a liquidation and are unsure of your rights get in touch on 1300 906 966 or chat to us via the live chat window on our site so we can let you know the options available to you.

Posted on 07-05-18 in Business insolvency, Liquidation.