Case: Re Korda; in the matter of Stockford Ltd [2004] FCA 1682 ; (2004) 140 FCR 424
Outcome: discussed
The decision of Finkelstein J in Re Korda; in the matter of Stockford Ltd [2004] FCA 1682 ; (2004) 140 FCR 424 ( Stockford ) drew attention to some issues relating to the fixing of the remuneration of administrators and has indirectly led to the present proceeding. Finkelstein J said (at [5]): 'Although s 449E requires the remuneration to be "fixed" by the creditors or the court, the section does not specify how it is to be "fixed". It could be "fixed" as a periodic salary, a lump sum, a percentage of some amount (such as the value of the company's assets under the administrators' control) or according to the amount of time spent by the administrator determined by reference to a scale or formula. The matter is simply left at large. So also is the basis upon which the quantum of the remuneration is to be determined. That is, the section is silent on the factors to be taken into account both for deciding the appropriate method of "fixing" an administrator's remuneration and in determining the amount to be "fixed". The only guidance that is given, and it is given by necessary implication, is that an administrator is entitled to reasonable remuneration. That offers little assistance to the tribunal that is required to decide what is reasonable in a particular case.' 17 It will be observed that the reference to 'reasonable' remuneration is a gloss upon the words of the Act and is described by his Honour as arising from 'necessary implication'. That implication may, no doubt, be given effect to in the operation of s 449E(2) but is of doubtful relevance to the construction of s 449E(1). There is much else of relevance in the judgment in Stockford which is too lengthy to reproduce but some other passages repay reproduction. His Honour said (at [24] and [30] [31]): 'The natural meaning of the word "fix" in the context of an entitlement to "such remuneration as is fixed by a resolution of [creditors]" is, so it seems to me, to quantify that remuneration, that is to calculate or ascertain the amount of remuneration: Mayne v Jaques [1960] HCA 23 ; (1960) 101 CLR 169, 173, 174, 180. See also In re Gallard; Ex parte Harris [1892] 1 QB 532, 544. Thus, remuneration will be "fixed" if it is stated as a money sum, or is based on a formula which is capable of being applied according to some objective standard so the sum "can be calculated or ascertained definitely": Fraser Henleins v Cody [1945] HCA 49 ; (1945) 70 CLR 100, 128. In the case of a formula all the objective elements must be identified. Other cases which support this approach in related contexts include, in Canada: Hill v State (1913) 14 DLR 158, 163; Beuregard v The Queen in right of Canada (1983) 148 DLR (3d) 205, 235; Royal Bank of Canada v Bjorklund (1985) 36 Man R (2d) 54, 59; and in the United States: Zimmerman v Carfield 42 Ohio St 463, 468 (1885); Board of Supervisors of Yavapai County v Stephens 177 P 261, 262 (1919); Culberson v Watkins 119 SE 319, 322 (1923); Woodcock v Dick 222 P 2d 667, 669 (1950); Powers v Isley 183 P 2d 880, 884 (1974). ... 'The question arises whether the approval of prospective fees charged on a time basis amounts to "fixing" or "determining" the liquidator's remuneration. On one view such approval does no more than fix the rate at which remuneration is to be charged; as the method sets no limit to the amount to be charged it may not "fix" the remuneration. At least there must be real doubt about the validity of the practice. It is not, however, a matter which I need resolve, for the issue does not arise squarely on the facts and no submissions were directed to the question. To reach a concluded view would require consideration of, among other things, the knowledge of the practice by Parliament when the Companies Acts were re-enacted or amended. If Parliament knew of the practice and did not change the statute that is relevant to its interpretation. I should say that if the practice be irregular that would not mean that a liquidator must complete his administration before he receives any remuneration. He could be allowed interim remuneration while work is being performed, leaving the precise amount of his remuneration to be fixed when the winding up is complete. In any event, the problem may not be as large as at first it seems. Oftentimes, especially in a complex administration, it will be too difficult to fix fees prospectively having regard to the matters that should be taken into account, as I will later explain. For this reason courts have from time to time refused to fix fees prospectively: for instance Re Daily Telegraph Newspaper Company Limited (1931) 48 WN (NSW) 236. Be that as it may, whatever be the correct meaning of "fixing" remuneration, it was not "fixed" in this case. The resolutions purporting to fix the administrators' remuneration did so by reference to the rates in the administrators' report. According to those rates work performed by persons occupying the same position could attract a different hourly charge. There was no criteria by reference to which one could determine which hourly charge would be applied. In reality it was left to the administrators to decide what the rate would be. In this state of affairs it was the administrators and not the creditors who fixed their remuneration.' [emphasis added] 18 Finkelstein J did not decide the point at issue here in Stockford . It is also notable that much of the discussion in Stockford related not so much to the question of whether fees are 'fixed' but whether the fees, if fixed, are reasonable. 20 It is submitted for the plaintiff that the resolutions in the present case do not suffer from the defect which existed in Stockford as there is only one rate fixed for each person who does any work in connection with the administration. Once the person and his or her category is known, and the time spent is known, the guide can be arithmetically applied to arrive at the result. Thus, the resolution here does avoid one of the problems which brought down the arrangement in Stockford . Counsel also relied upon the specific monetary limits or caps to avoid the criticism that the arrangements would otherwise be open ended.