Sections of this Inspector-General Practice Statement have been written with reference to the guidance given in the Australian Restructuring Insolvency and Turnaround Association (ARITA) Code of Professional Practice (Code).
Please note ARITA updates its Code from time to time. The most recent version may be accessed from its website at www.arita.com.au.
1.1 The Bankruptcy Legislation Amendment Act 2010 (BLAA 2010) introduced amendments to the Bankruptcy Act 1966 (the Act) to, among other purposes, provide a clearer regime for setting and reviewing trustee remuneration. The Inspector-General in Bankruptcy, through the Regulation staff of AFSA, now has a more effective role and enhanced oversight to ensure that trustees are following rules when claiming remuneration. The regime facilitates the effective and affordable resolution of disputes concerning remuneration or costs.
1.2 In appropriate exceptional circumstances, as outlined in the Bankruptcy Regulations 1996 (the Regulations), AFSA will conduct a review of a trustee’s remuneration or costs, at no cost to the applicant. The purpose of this statement is to provide information and guidance on the exercise of the Inspector-General review function in respect to trustee remuneration and costs. This Practice Statement only applies to the Official Trustee in respect to a review of costs, whilst applying to registered trustees for both remuneration and costs.
2.1 The review process (including this practice statement and the regulations referred to in it) applies to all bankruptcies, section 188 authorities and personal insolvency agreements where the date of bankruptcy or the date of execution of the personal insolvency agreement (whichever is the case) is on or after 1 December 2010. It replaces the prior taxation process which will continue to apply where the date of bankruptcy (or PIA execution), was before 1 December 2010.
2.2 Criticism has arisen regarding the inflexibility and cost of the taxation process. More generally, the word 'taxation' gives rise to perceptions of the nature of the process that do not necessarily reflect its purpose. The new process is therefore referred to as a 'review'.
2.3 The review process is meant to be utilised where the trustee’s remuneration claim or the costs of a third party service provider are disputed. This process is free to the applicant and is flexible by allowing it to be tailored to the particular issues in dispute.
2.4 Consistent with the taxation process, a review by the Inspector-General of a registered trustee’s claim for remuneration will encompass both the trustee’s professional fees and certain disbursements.
2.5 The ARITA Code of Professional Practice distinguishes between professional and non-professional disbursements (an abridged extract of this part of the ARITA Code appears at Annexure 1 to this practice statement). The first category includes fees charged by lawyers, accountants, auctioneers, valuers and similar professionals retained as external advisers by a trustee. Non-professional disbursements include both external (such as travel, accommodation and advertising) and internal (such as telephone calls, postage, stationery and photocopying) costs incurred during an administration.
2.6 In terms of the Inspector-General review process, a review of a registered trustee’s claim for remuneration will include the non-professional disbursements referred to in the ARITA Code, whereas a review of the costs of a third party service provider will generally relate to the professional disbursements referred to in the ARITA Code.
3.1 As reviews of remuneration or costs will be free and may be resource-intensive, they are to occur only in exceptional circumstances which satisfy the criteria outlined in Regulation 8.12F. There is no provision for a remuneration (or costs) review to be conducted on the Inspector-General’s own initiative, nor is there provision for a review to be undertaken at the request of the Ombudsman as with other reviews under the Act. All remuneration reviews are therefore by application only.
3.2 The process consists of two stages:
a. determining whether the application should be accepted
b. if accepted, the conduct of the review.
3.3 The application by a creditor, bankrupt or debtor (subject to a section 188 authority or personal insolvency agreement) must be in writing and must, subject to the power of the Inspector-General to extend the period, be made, in accordance with Regulation 8.12E, within 28 days after the applicant receives a remuneration claim notice from the trustee under Regulation 8.12C.
3.4 The Inspector-General may extend the 28-day period before or after it expires to any period considered appropriate if satisfied that the applicant and the trustee have been engaged in an alternative dispute resolution process to try to resolve the matter or it is appropriate, in all the circumstances, to extend the period.
3.5 Circumstances other than when the applicant and the trustee have been involved in an alternative dispute resolution, when it would be appropriate to extend the period under Regulation 8.12E, are, for example, one or more of the following:
(a) the applicant has requested to inspect the accounts and records of the administration but has not yet been able to do so (for example, because the applicant lives in a remote location and has been unable to attend at the trustee’s office)
(b) the applicant has sought a copy of the trustee’s detailed bill of charges and has either not received it or has had insufficient time to examine it
(c) the applicant is otherwise in the process of seeking information from the trustee about the work that has been performed or the remuneration and costs that have been incurred
(d) there are extenuating circumstances of the applicant that contributed to the delay in making the application, such as illness or injury.
3.6 The applicant may apply to the Administrative Appeals Tribunal (AAT) for the review of a decision by the Inspector-General to refuse to extend the period in which an application for review may be made, whilst the trustee may apply to the AAT for a review of a decision to extend the period in which an application for review may be made. Subregulations 8.12E(5) and (6) refer.
When the Inspector-General must or may refuse an application for review of remuneration
3.7 Regulation 8.12F provides as follows:
“(1) The Inspector-General must refuse to accept an application:
(a) unless the Inspector-General is satisfied on reasonable grounds that 1 or more of the following apply:
(i) the trustee’s remuneration may have been fixed in a manner that is inconsistent with the requirements of the Act and these Regulations;
(ii) the trustee may have acted improperly, or without due care and diligence, in the administration of the estate; or
(b) if the Inspector-General is satisfied on reasonable grounds that:
(i) the applicant does not have an interest in the outcome of the review; or
(ii) the applicant has not adequately particularised the issue giving rise to the review; or
(iii) the application is frivolous or vexatious.
(2) However, the Inspector-General may accept an application if the Inspector- General is satisfied that there are exceptional circumstances to justify the review.
(3) The Inspector-General may refuse to accept an application if the Inspector- General is satisfied on reasonable grounds that:
(a) it was appropriate in all the circumstances for the applicant to attempt to resolve the matter without seeking a review under this subdivision; and
(b) the applicant did not do so; and
(c) the applicant did not provide any reasonable explanation for not doing so.”
Interest in the outcome of the review
3.8 An 'interest' in the outcome of the review can be regarded as synonymous with a 'realistic expectation' of receiving a dividend from the administration in the case of a creditor, or a surplus in the case of a bankrupt.
3.9 An application for review of the trustee’s claim for remuneration will only be appropriate where there are exceptional circumstances.1 Exceptional circumstances may include but are not limited to:
- when evidence can be provided by the applicant of errors on the part of the trustee or his/her staff in procedures under the Act requiring significant remedial action including work done poorly, or at worst, improperly and needing to be reworked
- systemic and justified complaints having been made to AFSA about the trustee’s conduct which indicate that the trustee or his/her staff may have been performing work which is not necessary and/or not properly carried out
- evidence of inefficiency and/or inappropriate billing practices having been found by the applicant, or by AFSA as a result of the investigation of a complaint, an inspection, or otherwise. This may include, for example, inefficient use of staff in the conduct of the administration, charging higher rates for senior staff to carry out routine tasks which ordinarily would be carried out by more junior staff, charging for communicating with AFSA in respect to other than spurious complaints or inordinate delays without a reasonable explanation in the distribution of the estate.
1 Discussion Paper 'Amendments to the Bankruptcy Regulations 1996' Attorney Generals Department, December 2009 (at paragraphs 3.2 and 6.6) and Regulation 8.12F
Form of application
3.10 The application for review must be in writing. The suggested form of application, Form 28 application for review of trustee remuneration is available on the AFSA website. The applicant will need to provide the following information and documentation when applying for the review:
- the applicant’s full name, address and contact telephone number
- the remuneration claim notice received from the trustee and the date the notice was received
- in the case of an application by a creditor, the amount claimed to be owed to the creditor and evidence of the creditor’s debt which may include, if appropriate, evidence that the creditor’s proof of debt has been admitted by the trustee
- the reason for the application including the particulars of the specific issue(s) giving rise to the review
- whether a review is sought of all of the trustee’s remuneration or only part of the remuneration
- the specific aspects of the remuneration that are disputed. It is not sufficient for an applicant to simply state words to the effect '…every item of work is disputed' without offering specific and detailed reasons why
- what steps if any the applicant has taken to try to resolve the matter with the trustee and, if none were taken, why not.
3.11 When considering an application by a creditor, AFSA will take into account the fact that creditors have, under section 173 of the Act, a right to inspect, at all reasonable times, either personally or by an agent, the accounts and records relating to an estate. This right, if exercised in a timely manner, should mean that the creditor is able to particularise the issue giving rise to the request for the review. A reason given for a review of 'remuneration appears excessive' or similar would not be a sufficient reason on its own to conduct a review, unless exceptional circumstances were known to AFSA. Examples of the type of issues that may be considered sufficient to justify a review are:
- the trustee is a sole practitioner and has charged principal rates for all the tasks carried out in the record of chargeable time that relates to his/her most recent remuneration claim. Many of the tasks were routine and would be expected to be charged out at a lower rate.
- the trustee in his or her first report to creditors omitted several important issues that creditors were expecting to read about and, after intervention by AFSA, the trustee issued a supplementary report, and the trustee has apparently charged the estate for his or her time dealing with the Regulator and preparing the supplementary report
- the trustee has delayed the distribution of the estate for an unreasonable period without explanation and charged the estate for monthly file reviews
- there are joint and separate estates, each with funds and each with creditors, yet the trustee has not sought approval for remuneration in each estate and is claiming one sum for remuneration from all estates
- the trustee convened a meeting of creditors to consider a proposal for composition but gave insufficient notice to creditors resulting in an adjournment and a supplementary report to creditors having to be issued, and the trustee’s remuneration claim included this extra activity.
3.12 If a 'creditor' applicant cannot establish to the satisfaction of AFSA that they are a creditor, their application for review will be rejected.
3.13 Before deciding whether to conduct a review, unless the application is rejected for the reasons already mentioned, AFSA may undertake one or more of the following:
a. interview the applicant
b. interview the trustee
c. inspect the trustee’s administration file to gauge the level of complexity, standard of administration and veracity of the applicant’s allegations, particularly where more pervasive or systemic problems are alleged by the applicant.
Notification of decision refusing application
3.14 Regulation 8.12G provides:
(1) If the Inspector-General refuses to accept the application, the Inspector- General must give the applicant and the trustee written notice of the refusal.
(2) The notice must be given to the applicant and the trustee within 14 days after the day the Inspector-General refuses the application and must include the reasons for the refusal.
Review of bill of costs
4.1 Subsection 167(2) of the Act provides that the regulations may make provision for the Inspector-General to review a bill of costs for services provided by a third party in relation to the administration of a bankrupt’s estate (applicable also to section 188 authorities and personal insolvency agreements).
Application for review—form and timing
4.2. Under Regulation 8.12I, the trustee of the bankrupt’s estate may apply in writing to the Inspector-General to review a bill of costs for services provided by a third party in relation to the administration of the bankrupt’s estate.
4.3 The application must be made (subject to the power of extension) within 28 days after the trustee receives the bill of costs from the third party. The Inspector-General may, before or after the end of the above mentioned 28 days, extend the period in which an application for review may be made if satisfied that the trustee and the third party have been engaged in an alternative dispute resolution process or it is appropriate in all the circumstances to extend the period.
4.4 Circumstances other than when the trustee and the third party provider have been involved in an alternative dispute resolution process, when it would be appropriate to extend the period under Regulation 8.12I, are, for example, one or more of the following:
(a) the trustee has decided to inspect the file of the third party service provider and has not yet been able to do so
(b) the trustee has sought a copy of the third party service provider’s detailed bill of charges and has either not received it or has had insufficient time to examine it
(c) the trustee is otherwise in the process of seeking information from the third party service provider about the work that has been performed or the costs that have been incurred
(d) there are extenuating circumstances of the trustee or the third party service provider that contribute to the delay.
4.5 The trustee or third party may apply to the AAT for review of a decision by the Inspector-General to refuse to extend the period in which an application for review may be made.
4.6 The application by the trustee should enclose a copy of the bill of costs and an explanation as to why a review is being sought. There is no prescribed format for making this application.
4.7 If a request is received from a trustee for the review of a bill of costs, it is most likely to be in respect to legal costs. There is a considerable amount of case law relating to the taxation of solicitor-client costs and for that reason it is likely that should the amount of the solicitor-client costs be very large, a person who is familiar with the assessment of such costs, will be engaged by the Inspector-General to assist in the review.
5.1 Regulation 8.12L provides as follows:
“In conducting the review, the Inspector-General may do any of the following:
(a) conduct the review:
(i) with the parties present; or
(ii) on the papers; or
(iii) in part with the parties present and in part on the papers;
(b) adjourn or discontinue the review if the Inspector-General considers it necessary or appropriate to do so;
(c) engage an expert to assist in the review and arrange for payment to be made to the expert;
(d) direct the trustee to provide an itemised invoice in a form, and within the time, specified in the direction for work undertaken by the trustee;
(e) direct a third party to give an itemised bill of costs in a form, and within the time, specified in the direction in relation to work undertaken by the third
(f) interview any party to the review and allow the other party or their representative to question that party;
(g) direct a person to give a written statement, in a specified form and signed by the person, about a matter relevant to the review;
(h) direct the trustee to produce to the Inspector-General or to a party to the review, all or part of the trustee's files or documents in relation to the administration of the bankrupt's estate;
(i) copy documents, or arrange for copies to be made and delivered to the Inspector-General or a party to the review;
(j) direct a party seeking inspection, production or copies of documents to comply with conditions (including conditions relating to payment) in relation to the inspection, production or copying;
(k) proceed with the review in the absence of a party if the Inspector-General considers it necessary or appropriate to do so;
(l) direct the trustee to take particular action for the administration of the estate, including refunding any remuneration not properly claimed or supported.
Note: This regulation does not exclude the need for the Inspector-General to provide procedural fairness when conducting the review.”
5.2 The extent and formality of the review will depend on the issue(s) particularised by the applicant and whether the issue is a discrete, isolated item in the course of the administration or a more pervasive or systemic problem.
5.3 The form that the review takes will vary depending on the issues raised by the applicant and the information known to AFSA about the trustee and the particular administration. The review may be:
- a brief review of a step taken and the associated remuneration charged where an issue raised is isolated or
- a comprehensive review in cases involving systemic problems throughout the course of the administration such as, for example, a sole practitioner with no support staff charging principal rates for routine tasks carried out, throughout the administration.
Non-compliance with directions
5.3 If a person to whom the Inspector-General gives a direction under the above mentioned powers does not comply with the direction, the Inspector-General may conduct the review on the basis of the information available.
5.4 If the trustee does not comply with a direction of the Inspector-General under paragraphs (d), (h) or (l) of Regulation 8.12L (set out above), the Inspector-General may direct under Regulation 8.12M that the trustee is not entitled to the remuneration, or part of the remuneration, that is the subject of the review.
Information likely to be required
5.5 The information that is going to be required of a trustee (assuming use of the time-charging method) is the trustee’s itemised record of time charged to the estate also known as the detailed work-in-progress (WIP). This record will or should identify for each item of work:
- the date the work was carried out
- the name or initials of the staff carrying out the task
- the number of time units spent on the task
- a description of the work carried out
- the charge to the estate for the work carried out.
5.6 The trustee may be asked to self-assess the detailed WIP and eliminate or reduce entries in respect to:
- charging for re-work arising from staff errors
- charging for multiple and unnecessary redrafting of documents
- charging for reviews of files by new staff
- routine and non-complex tasks done by senior staff and charged at senior rates
- charges for interacting with the regulator except where a repeat unjustified complaint is deemed spurious
- charges unreasonably high or not commensurate with the corresponding task completed.
5.7 The above are examples only and do not represent an exhaustive list.
5.8 Other information and documents that may be required:
- the initial remuneration notice required under Regulation 8.12A
- the remuneration approval notice given under Regulation 8.12B
- the remuneration claim notice given under Regulation 8.12C
- Form 2 (trustee’s account of receipts and payments) and cashbook
- if necessary, the administration file including all records associated with the approval and drawing of remuneration and bank account records
- time sheets and work diaries of trustee and trustee’s staff in so far as they are necessary.
5.9 In conducting the review, the AFSA reviewing officer will refer to the following guidance in considering whether remuneration is appropriate:
- the Bankruptcy Act 1966 and the Bankruptcy Regulations 1996 in particular, the performance standards for trustees at Schedule 4A of the regulations
- Inspector-General Practice Direction 6 'Remuneration entitlements of a registered bankruptcy trustee'
- Inspector-General Practice Statement 15 'Assessment by the Inspector-General of a Trustee’s remuneration approval request '
- Inspector-General Practice Direction 18 'Trustee remuneration notifications'
The Australian Restructuring Insolvency and Turnaround Association Code of Professional Practice’ (chapters 14 and 15).
Principles taken from the above guidance that the AFSA Regulation reviewing officer will take into account
5.10 Remuneration should be reasonable and should only be charged for work that is both necessary and properly carried out. 'Necessary' means connected with the administration and done in furtherance of the exercise of the powers and performance of the duties of a practitioner as required by insolvency law and practice. A trustee must not seek to be remunerated for work:
1. outside the scope of the powers of the practitioner
2. carried out before the practitioner was appointed.2
5.11. These restrictions are a threshold test before applying the 'necessary and properly performed' test.
5.12 Before deciding whether it is appropriate to incur a cost, the trustee must compare the amount of the cost likely to be incurred with the value and complexity of the administration.
2 A rare exception would be when a special resolution has been passed under paragraph 109(1)(j).
Rate for tasks undertaken by the trustee's staff
5.13 The trustee must ensure that time billed for a task undertaken in conducting an administration is charged at the appropriate rate for the level of staff who would be reasonably expected to undertake the task.
How review to be conducted
5.14 Regulation 8.12K provides:
“(1) The Inspector-General must conduct the review with as little formality and technicality, and with as much expedition, as the Act and the Regulations, and a proper consideration of the matter, permit.
(2) In conducting the review, the Inspector-General:
(a) is not bound by legal technicalities, legal forms or rules of evidence; and
(b) may inform himself or herself on any matter relevant to the review in such manner as he or she thinks appropriate.”
5.15 Within the above constraints, the review is likely to involve the following steps:
i. ascertaining from the application and an interview of the applicant and the trustee (not necessarily in person) the concerns or issues raised by the applicant
ii. compiling the information and documents required for the review
iii. checking that remuneration has been validly approved and that the required notices have been given
iv. perusal of the record of time charged to the administration to establish that charges are reasonable and only for work that is both necessary and properly performed. Refer to Annexures 1 and 2 for further guidance in this regard.
Outcome of the review
5.16. Sub regulation 8.12J(2) provides:
“(2) The Inspector-General may:
(a) affirm the amount claimed by the trustee or the third party; or
(b) disallow all or part of the trustee’s claim for remuneration and substitute another amount for the amount claimed; or
(c) disallow all or part of the third party’s bill of costs and substitute another amount for the amount claimed; or
(d) dismiss the application.”
5.17. When the Inspector-General’s delegate makes his or her decision, that person must prepare a written statement that:
a. sets out the decision of the Inspector-General
b. sets out the reasons for the decision
c. sets out the findings on any material questions of fact
d. refers to evidence or other material on which the findings of fact are based
e. sets out the effect of subsection 167(6) of the Act in relation to the Inspector- General’s decision (which relates to appeals from that decision – see paragraph 5.20 below).
5.18. If the trustee’s remuneration is reduced after review, upon being given a copy of the decision, the trustee may, under Regulation 8.12O, be required in writing to repay to the estate any excess drawn from the estate by a certain date. The repayment of excessive trustee remuneration is recoverable by the Inspector-General as a debt in a court of competent jurisdiction.
5.19. Under Regulation 8.12N, the Inspector-General must complete the review and make a decision on the application, within 60 days after the day the application is accepted for review; and give a copy of the decision to each party to the review, within 14 days of making the decision. The application will only be accepted for review if and from the time that the applicant provides all necessary information in support of the application.
Appeal to the court
5.20 The trustee, the bankrupt or a creditor of the bankrupt may appeal to the court from a decision of the Inspector-General in relation to the review, under Subsection 167(6) of the Act. In addition, if the review is of the costs of a third party service provider, the third party may also appeal to the Court from a decision of the Inspector-General in relation to the review.
5.21 Annexure B contains a flowchart of the application process for seeking a review of remuneration or third party costs by the Inspector-General.
First Remuneration Principle – Necessary and Proper
A practitioner is entitled to claim remuneration and disbursements, in respect of necessary work, properly performed in an administration.
A practitioner’s right to be paid is recognised under the legislation and at general law and is given a high priority of payment from the insolvent’s funds.
The entitlement to remuneration exists only in respect of work done that was necessary and was properly performed.
A practitioner is entitled to remuneration only in respect of work done that was necessary for the administration. The term ‘necessary’ means work that was done that was:
- connected with the administration
- done in furtherance of the exercise of the powers and performance of the duties of a Practitioner as required by insolvency law and practice.
- report to creditors
- protection and recovery of assets; preparing and filing an offence referral with AFSA (even though this may have no direct benefit to creditors).
The examination of claims for remuneration will necessarily be made with the benefit of hindsight. However, a Practitioner may claim for work that may not have produced a positive outcome provided there is a proper exercise of professional judgement by the practitioner at the time the work was undertaken. Once that is established, the work will remain 'necessary' for the purposes of a remuneration claim, even if subsequent events show that the work was not necessary.
In order to claim remuneration for necessary work, the Practitioner will need to establish that the work was properly performed.
Work done poorly, or, at worst, improperly and needing to be reworked should not be charged.
- It may have been necessary to inquire of all property titles countrywide, but if the staff member doing that work pursued inquiries through the wrong agency because of ignorance or inattention, then that work was not done properly.
- It may have been necessary for the practitioner to have convened a meeting of creditors, but if work done in convening that meeting took an inordinate amount of time, through the inexperience of the staff member, it was not done properly. While an allowance is made for junior staff through the lower hourly rate, where activity is redone, care should be taken to ensure that the amount charged reflects the true value of the work.
- Work performed to convene an invalid meeting would not be properly performed.
Creditors are entitled to expect that administration funds are not expended on work that was not properly performed. All time spent for necessary work properly performed should be recorded against the appointment using an appropriate system. Before claiming remuneration, the practitioner should identify work and time that should not be claimed.
The legislation does not generally state by what criteria remuneration is to be ‘fixed’ or ‘determined’ by creditors. Under the Corporations Act, on a review of a practitioner’s remuneration, the Court must have regard to whether the remuneration is reasonable, taking into account various matters including whether the work was 'reasonably necessary'. In bankruptcy there is more limited guidance that costs of services provided to a trustee were 'reasonable and necessary' (s 167 of the Bankruptcy Act, Schedule 4A 2.13). The remuneration requirements of the Code for work that is necessary and properly performed are consistent with, or impose a higher standard than, the law.
Prior approval of fees does not remove the obligation to establish that the work was necessary and properly performed. The mere approval does not give the right to draw remuneration if the work is not done.
Deciding what work to undertake
The practitioner should exercise professional and commercial judgement in considering whether work is to be performed. Clearly work that improves the return for creditors should be undertaken.
A judgement will need to be made in relation to the pursuit of unfair preference claims or other voidable transactions in terms of the likely cost and likely return. This may involve consultation with creditors, and, if appropriate, legal advice, or reference to the court.
Not all work is associated with directly seeking a return for creditors. Many of the general statutory tasks of a practitioner—for example, in reporting to creditors, lodging statutory records with AFSA, and maintaining accounts—are properly performed and charged even though the remuneration charged will not produce a financial return and will reduce the funds available for distribution.
A practitioner may ‘outsource’ work subject to the restrictions on delegation (e.g. decision making and exercise of judgement).
The decision to outsource is a matter of commercial judgement for the practitioner, based on such considerations as:
- geography and location (the business may have its operations spread throughout the country and it may be commercially necessary to appoint local agents to deal with particular tasks)
- time constraints
- costs considerations (the external source may be able to attend to an urgent task quickly, or more cheaply).
If work is outsourced, the practitioner’s obligations remain the same as if the practitioner or members of staff had performed the work. Outsourced work may only be claimed as remuneration and not as a disbursement and will be subject to the same test of necessary and properly performed.
What remuneration cannot be charged for
A practitioner must not seek to be remunerated for work:
- outside the scope of the powers of the practitioner or
- carried out before the practitioner was appointed.
These restrictions are a threshold test before applying the 'necessary and properly performed' test.
Staff levels and numbers
In time-based charging, the practitioner must ensure that the number and qualifications of staff allocated to an administration is appropriate for the nature of the work being performed.
An experienced trustee generally would not attend to more routine tasks—such as preparing notices for a meeting—given that such tasks could be done as well and at a lower charge-out rate by a more junior member of staff.
This will require commercial and professional judgement. As the Court said in One.Tel in the matter of application by Liquidators  NSWSC 1104 (2 November 2005) at 19: “while a particular task may be appropriate to a particular level of employee, it is quite possible that the liquidator (or trustee in the case of a bankruptcy) himself charging an hourly rate double or triple that of the appropriate level of employee may be able to do the work in one quarter of the time. That is always a risk in time costing.”
It may be more cost effective for the practitioner to prepare and finalise a report for creditors, if the report is required urgently and requires the practitioner’s input.
Care should be taken in allocating the appropriate number of staff to an administration or task, particularly when travel is required. This is a balance between having sufficient staff available to undertake the required tasks and over servicing the administration.
Costs of claiming remuneration
Practitioners may claim the costs of record keeping and seeking approval or determination of their claim for remuneration.
This may include the cost of producing a report for creditors to allow creditors to make an informed decision whether to approve the remuneration or the costs of applying to the court (subject to any order of the court).
Costs of communicating with regulators
A practitioner should not claim remuneration for time spent:
- communicating with regulators regarding complaints about the practitioner or the conduct of a particular administration, except where the complaint is spurious
- regulator surveillance, professional audits or inspection of files, or on peer reviews; or defending a breach of the law or the ARITA Code.
Disbursements may only be claimed if they were necessary and properly incurred. Practitioners must use their judgement: to determine that the work was necessary; that the fees to be charged were reasonable; and that the work done was properly performed.
In incurring disbursements, a practitioner must use their commercial judgement, adopting the perspective of, and acting with the same care as, a reasonable person exercising care and skill would act in incurring expenses on their own behalf.
While practitioners must account to creditors for disbursements, the reimbursement for the payment of disbursements does not require creditor approval before being drawn. Thus the categorisation of activity as remuneration or disbursement is significant.
What is a disbursement?
The practitioner needs to determine whether the claim for payment is in the nature of a disbursement, or whether it represents remuneration. Disbursements include those costs paid from the administration’s bank account directly and those costs paid by the practitioner and claimed back from the administration.
A practitioner should separate disbursements from the expenses of running their practice which may only be recovered through the charge-out rate.
External advice, non-insolvency
These are fees that satisfy both the following criteria. They are:
a. For professional services (non-insolvency services) relating to specific tasks required to be done during the administration
b. Are properly incurred by independent outside consultants engaged by, and not associated with, the Practitioner and their firm.
This is a disbursement because it involves the Practitioner retaining an external adviser for work to be done in an administration, at an agreed fee or rate. These expenses are claimed from the Administration at cost.
B1. External assistance
These are costs that satisfy all the following criteria:
a. Of an incidental nature
b. Not for professional services
c. Incurred with a third party in relation to work required to be done during the administration.
These are typical disbursements because they involve an outlay in relation to the administration.
These expenses are claimed from the Administration at cost.
B2. Internal assistance
These are costs that satisfy all the following criteria:
a. They are not for professional services
b. They are for goods or services properly provided by the practitioner or their staff in the administration
c. They are not overheads covered in the remuneration claim.
Reasonable costs of:
These are also typical disbursements, except they are incurred internally by the firm. These expenses, if charged to the Administration, would generally be charged at cost; though some expenses such as telephone calls, photocopying and printing may be charged at a rate which recoups both variable and fixed costs.