Should Receivers charge a margin on top of their consultants time when conducting Receiverships?
The Federal Court has today said no; even labelling it “an error of judgment or oversight”.
The case involved a very difficult and complex Receivership, spanning 30+ months and $hundreds of millions in assets.
The consultant in question had been engaged for the some 3,154 hours or more than $936,000 in fees.
Within the $936k, the Receivers had charged a margin of about $100 per hour, or 37%, more than the consultant had charged them.
The Receiver’s reasoning for charging the extra $100+/hr included:
– direct costs like payroll tax and insurance; and
– indirect costs like overheads, use of equipment/technology.
The Court held that the Receiver could be reimbursed for direct costs but not the margin on the indirect costs of the Receiver.
Instead the Court said that only the hypothetical indirect costs of the company in receivership would be allowed (had the consultant instead been an employee of the company in receivership).
This meant that the amount the Receivers could claim for the consultant were reduced by about $220k.
This is an important decision for insolvency practitioners to be aware of. Be very careful about what margins you add on.