Hello, my name is Tim Cole and I am the Director
of Operations and Strategy in AFSA’s Regulation and Enforcement division.
I welcome all AFSA stakeholders to this the third and final part of a three part series
on insolvency practitioner remuneration. A key regulatory focus of AFSA’s Insolvency
Practitioner Compliance Program. Our aim is to ensure practitioners comply
with the Bankruptcy Act and best practice principles when taking remuneration – and to
proactively identify, and where possible remedy, instances of overcharging or over-servicing.
In this podcast we will cover the following three areas: • Firstly, solvent estates – when further
work may not be warranted. • Secondly, set up fees in debt agreements, • And lastly, some common remuneration themes
and recent regulatory trends. What do we mean by solvent estates? Solvent estates are those with a
large excess of assets over liabilities. They quite often arise through sequestration order
over a disputed debt. In what appears to be an increasing trend, more sequestration orders
are being made in estates with total debts of less than $20,000 that have assets in excess
of $100,000. In cases such as these – in administrations where the bankrupt is solvent or has the resources
to pay out all his or her debts and achieve an annulment of the bankruptcy – it is the
Inspector-General’s expectation that trustees identify this early and work with the bankrupt
to achieve an optimal and speedy outcome for both the creditors and the bankrupt. This includes avoiding any unnecessary expense
and only doing work that is necessary to meet the trustee’s initial statutory duties including
notifying the creditors of the bankruptcy and safeguarding assets. This view has also
been expressed by the court in a number of cases and is also supported by the Schedule 4A (Performance Standards for Trustees ) The speedy resolution of administrations of
this nature is monitored by AFSA as a part of targeted programs.
Further guidance on this issue can be obtained from Inspector-General Practice Direction 6 Hello, I’m Paul Shaw and I am the National
Manager of AFSA’s Regulation and Enforcement division. Set up fees in debt agreements, charged prior
to the commencement of a formal appointment, are quite distinct from the fee charged by
a debt agreement administrator to administer a debt agreement. A set up fee is charged
by an administrator or a third person for the provision of information about a debt
agreement and assistance in preparing the debt agreement proposal up until the time
it is lodged for processing with AFSA It is the Inspector-General’s expectation
that the following 4 principles will be followed in relation to set up fees. Firstly, the amount of the set up fee to
be charged and the work to be performed to justify the fee is clearly communicated to
and agreed to by the debtor. Secondly, the submitting of the debt agreement
proposal to AFSA is not delayed to enable full payment of the set up fee. Thirdly, the set up fee is to be disclosed
in the debt agreement proposal. Fourthly, if any portion of the set up fee
is still owed as at the date the debt agreement proposal has been accepted by creditors, the
debt agreement administrator cannot continue to collect the fee after the debt agreement
is in place. In these circumstances the debt agreement administrator becomes a creditor
of the estate and receives dividends in the same way other creditors do. Further guidance for members of the Personal
Insolvency Professionals Association can be found in that organisation’s Code of Professional
Practice for Members. Since the amendments of the remuneration provisions
in the bankruptcy legislation for trustees commenced on 1 December 2010, there has been
a steady rise in the remuneration determinations and reviews sought. This can be seen from the table displayed
which covers the period from 1 July 2010 to 30 June 2014. Current data is reported in
our Personal Insolvency Practitioners Compliance Report which can be obtained from the AFSA
website When determining a trustee’s remuneration
AFSA often notes themes and trends. In this podcast I will discuss two common trends noted
in recent requests for approval. Firstly, when determining prospective
remuneration AFSA has often requested additional information from the trustee to justify why
the remuneration sought to be approved is necessary and appropriate for the work proposed
to be performed given the nature and complexity of the administration. This indicates that
the level of disclosure of information provided to creditors may be insufficient or not sufficiently
clear for them to make an informed decision on the amount sought for approval. Secondly, AFSA has observed instances
of trustee’s seeking approval for different amounts and periods than which were stated
in the proposals or resolutions that were put to creditors. While reviewing practitioner remuneration
and reducing amounts claimed the three most common trends found in recent remuneration reviews
are: Firstly, significant time charged by trustees
without effectively dealing with complaints by bankrupts or creditors about their administration
of bankruptcies. Experienced and professional practitioners should be properly equipped
to handle complaints efficiently and effectively. This may include referring the bankrupt or
creditor to another source of information or assistance when necessary. Secondly, work done and charged at levels
not commensurate with the complexity involved. For example, a Partner or Director who charges
in six minute intervals to review simple bank statements, and Thirdly, trustees not seeking creditors’
views – as ultimate beneficiaries – about whether to pay an interim dividend or to conduct
further investigations. That concludes the last 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.