Getting Paid as an Administrator of an Insolvent Company: ASIC v Marco (No. 9)
By Alicia Hill, Principal and Matthew Deetlefs, Law Clerk
During insolvency proceedings, administrators will generally be entitled to draw remuneration for their work from the assets of the company. However, where a company operates as a trustee or interim receivers were appointed before the administrators, there may be issues relating to the availability of assets to be drawn on for remuneration . This is particularly the case where the company’s operations were legally problematic, as was the case in Australian Securities and Investments Commission v Marco (No 9)  FCA 1306. In this case, the administrators sought to draw remuneration from assets which the interim receivers argued they, and only they, were entitled.
Cameron Shaw, Richard Albarran and Marcus Walters were the voluntary administrators (voluntary administrators), and briefly liquidators, on AMS Holdings (WA) Pty Ltd (AMS) from 24 September 2020 to 7 December 2020.
AMS operated as a managed investment scheme and held certain property on constructive trust for investors.
The Court appointed Robert Kirman and Robert Brauer as liquidators (liquidators) which therefore ended the voluntary administrators’ role. The liquidators had previously acted as interim receivers for AMS.
The voluntary administrators applied for remuneration for their work from 24 September 2020 to 7 December 2020 under section 60-10(1)(c) of the Insolvency Practice Schedule (Corporations) (IPSC) in Schedule 2 of the Corporations Act 2001.
Section 60-10(1)(c) provides that a determination of what an external administrator may receive for its work may be made by the Court if a determination is not made by the creditors or a committee of inspection.
The liquidators argued that there was no property that the voluntary administrators could draw from for remuneration because:
- The liquidators had been in control of the property as interim receivers at the time of the voluntary administrators’ appointment; and
- The voluntary administrators had no role to play in relation to the property and therefore did not care for, preserve, recover, or realise any property.
The voluntary administrators argued that:
- The liquidators’ control over the property did not affect whether they could draw remuneration from the property;
- The voluntary liquidators had rightfully played a role in relation to the property;
- The liquidators had misstated the law by asserting that the test as to whether a right of exoneration exists is a question of whether liabilities were incurred on trust business; and
- The property is held on trust by AMS, is available to AMS as trustee, and is therefore available to the voluntary administrators to draw from.
The Court found that the voluntary administrators were not entitled to remuneration under section 60-10 of the IPSC but were under section 60-5 of the IPSC.
The possession and control of AMS’ property held on trust was transferred to the interim receivers, including the extent of AMS’ right of exoneration and indemnity.
The voluntary administrators never had control of the property and could not incur any liabilities with respect to it. They also never possessed any right to be exonerated from such liabilities. That right, and the proprietary interest it conferred on AMS as trustee, was at all relevant times controlled and possessed by the interim receivers, along with the property itself.
Section 60-5 of the IPSC provides that an external administrator can receive remuneration for its work in accordance with remuneration determinations made under section 60-10.
This entitlement to remuneration is not subject to the same restrictions as section 60-10.
Under section 60-5, administrators will not lose their entitlement because the company operates as a trustee, its assets have been transferred, and the company’s property is therefore not subject to the statutory indemnity and lien over the property under sections 443D and 443F of the Corporations Act 2001.
The voluntary administrators were not blocked from drawing remuneration under this section as they were under section 60-10. The voluntary administrators had completed necessary work, had properly performed their duties, and were entitled to remuneration .
Where a company operates as a trustee or where interim receivers operate prior to the appointment of administrators, administrators must be careful in analysing whether there is property that can be drawn from for remuneration . In some instances, such as in this case, an entitlement to remuneration may not be available under section 60-10 of the IPSC.
The entitlement to remuneration under section 60-5 of the IPSC may still be relied on for necessary work that is properly performed in relation to the administration of the company.
If you have any queries about any of the matters raised by this case, then please contact Alicia Hill on (03) 8540 0292 or firstname.lastname@example.org