Hello, my name is Veronique Ingram. It gives me great pleasure as AFSA’s Chief Executive to introduce this new guidance series, via podcast, for all AFSA stakeholders. In today’s increasingly busy work environment, we are conscious of everyone’s competing demands and offering guidance via podcast will hopefully assist all stakeholders to access AFSA information and material at a time and communication method that is most convenient to them.
I will now hand you over to Paul Shaw, AFSA’s National Manager Regulation and Enforcement who will lead the first part of the podcast series on the topic of insolvency practitioner remuneration. As you will be aware, AFSA promotes a regulatory environment where all stakeholders play a part in maintaining best practice standards so I encourage you all to offer your feedback on this podcast and what more we can do to assist the personal insolvency industry. I trust you will find this podcast informative, practical and helpful in your day to day work. Hello, my name is Paul Shaw and I am the National Manager of AFSA’s Regulation and Enforcement division. I take this opportunity to welcome all AFSA stakeholders to this first podcast on the specific topic of insolvency practitioner remuneration. This podcast is the first of a three part series on insolvency practitioner remuneration, which is a key regulatory focus of AFSA’s Insolvency Practitioner Compliance Program. I will deliver this podcast with Tim Cole. AFSA’s aim is to ensure practitioners comply with the Bankruptcy Act and best practice principles when taking remuneration. AFSA also aims to proactively identify, and where possible remedy, instances of overcharging or over-servicing. In this first podcast we will cover two areas: Firstly, the principles applying to registered trustees when seeking to be remunerated; and Secondly, the information that must be provided by registered or controlling trustees to relevant stakeholders when seeking approval of their remuneration. Whilst both the bankruptcy legislation and general law recognise the right of a personal insolvency practitioner to be remunerated, there are four key principles which underpin this entitlement: Firstly, remuneration must be properly fixed; Secondly, it must be reasonable and necessary; Thirdly, it must be incurred legally; And finally it must be supported by documentation and proper records. I’ll speak about the first and second of those principles. The first principle is that remuneration must be properly fixed. Guidance on what is meant by properly fixing remuneration is provided in Inspector-General Practice Direction number 6. This is available on AFSA’s website. “Properly fixing” means that remuneration must be approved by creditors and also “capped” both in dollar amount and the time period for which approval is sought. Properly fixing in this way provides greater clarity to creditors as to what the trustee’s reasonable remuneration will be. It also provides flexibility to trustees in circumstances where the administration extends beyond the estimated period. Should creditors decide not to fix remuneration there are certain circumstances in which trustees can apply to AFSA to seek to have their remuneration approved. These circumstances are set out in Regulation 8.09 of the Bankruptcy Regulations. AFSA’s practice for assessing remuneration approval requests is set out in Inspector-General Practice Statement number 15. The second principle is that remuneration must be both necessary and reasonable. This principle is directly related to the duties of a trustee under paragraphs 19(1)(j) and (k) of the Act – that is, to administer the estate as efficiently as possible by avoiding unnecessary expense and exercising powers in a commercially sound way. There must be a clear nexus between the work performed, the extent of that work and the administration of the estate. Further, that work must be performed at the appropriate level of insolvency officer commensurate with the complexity of the work being performed. So what is the right rate to charge in this following hypothetical example? Just assume that Julie is the Senior Manager with in excess of 15 years insolvency experience would have normally asked Tom, the administrative assistant, to photocopy spare copies of reports to be made available at a meeting of creditors. As Tom wasn’t available, Julie prepared the photocopies. Should Julie charge the time taken to make these photocopies at her rate or at Tom’s rate? In keeping with the principle to only charge remuneration for work that is necessary or reasonably incurred, it is important that in this case the work performed is charged at Tom’s hourly rate, even though Julie performed the work. Further guidance on what is considered to be reasonable and necessary can be obtained from: Inspector-General Practice Directions number 6 and 14 The ARITA Code of Professional Practice and APES 330 – Insolvency Services I’ll now pass over to Tim Cole who will speak about the next two remuneration principles. Hi, my name is Tim Cole and I am the Director of Operations and Strategy in AFSA’s Regulation and Enforcement division. The next principle is that remuneration must be incurred legally. There are examples of work, where, in the Inspector-General’s view, it is not acceptable for trustees to charge fees or costs for the work undertaken. I will discuss five such examples: Firstly, when litigating for self-interest. Litigation should be avoided unless the chance of success is in the interests of the estate rather than the trustee. The Courts have held that, where the resources applied to litigation are extravagant, the expenses would not be regarded as proper and must be borne by the trustee personally. Secondly, when performing work not conducted in the capacity of or outside the scope of the powers of a trustee of the personal insolvency administration. An example of this is preparing income tax returns for a bankrupt and charging time for this to the estate. Thirdly, when further action by a trustee is not required or necessary such as when the bankrupt is solvent or has funds available to pay out all of his or her debts. In these asset rich estates, it is the Inspector-General’s views that trustees must take a minimalist approach to administration and work with the bankrupt and creditors towards an annulment at the first available opportunity.
Another example where it is not acceptable for practitioners to charge fees or costs for the work undertaken is when assisting and responding to regulatory enquiries and investigations by AFSA, the results of which indicate a breach of Legislation by the practitioner. This view is also supported by ARITA, as detailed in their code of professional conduct. The fifth and final example is in relation to fees or expenses incurred before the date the administration starts, cannot be paid from the administration unless it is approved by a special resolution at a meeting of creditors. Further guidance on when it is not considered acceptable to charge fees and costs to a personal insolvent administration can be obtained from: Inspector-General Practice Directions 6 and 14 Inspector-General Practice Statement 16 The ARITA Code of Professional Practice APES 330 – on Insolvency Services The fourth and final remuneration principle is that proper records must be kept to support the remuneration claimed It is a requirement of the Trustee Performance Standards in Schedule 4A of the Regulations and the ARITA Code of Professional Practice that proper records are kept to support the remuneration charged to the estate. This includes a description of the task performed, who performed the task and the time taken to do the task. There should also be evidence on a trustee’s file that the work being billed for has been performed. If a trustee is unable to provide evidence that the work described has been charged for and has been completed they may be required to refund that part of their fees if a review of remuneration is performed by AFSA. Further guidance can be obtained from: Inspector-General Practice Directions 6 and 14 Inspector-General Practice Statement 16 The ARITA Code of Professional Practice When seeking approval from creditors to ‘properly fix’ remuneration, trustees are required to send a Remuneration Approval Notice to the creditors of the administration. The information that must be provided and when it is to be provided is outlined in regulation 8.12B of the Regulations and includes: a description of the work that the trustee has undertaken or is likely to undertake; details of the particular tasks to be undertaken by the trustee and any person assisting the trustee; the number of hours and hourly charge out rate of the work to be performed by the trustee and all assisting him – rolling into the proposed total remuneration amount for administering the estate; a statement that the costs to be incurred are reasonable and necessary; a report on work that has been completed, work that is in progress and work yet to be undertaken. The information that needs to be provided to creditors differs slightly depending on the type of administration and the respective regulations – nevertheless the underlying message across all is consistent – that is, it is expected that the information provided will be relevant to the specific administration and is sufficient and meaningful to enable creditors to make an informed decision as to whether the remuneration is appropriate and should be approved.
Further guidance can be obtained from: Inspector-General Practice Direction 18 That concludes the first of our three part series on insolvency practitioner remuneration. I encourage stakeholders to contact AFSA with any concerns, complaints or questions about insolvency practitioner remuneration. Finally I would also like to take this opportunity to draw to your attention to AFSA’s Policies and Practices website showing on your screen. Thank you for watching this podcast.