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Complaints about fees still rank highly among the number of complaints largely because the public at large is unlikely to understand fully the complex nature of the insolvency process. We understand the IVA working group, which is looking at ways of simplifying IVAs, is also considering greater transparency in the way in which fees are calculated and charged.
With regard to the fees charged in a corporate insolvency matters, consideration of value for money and effectiveness of the assignment is still the subject matter of debate. As we indicated in our report for 2003 the IPC appreciates that it is likely to be difficult to establish hard-and-fast rules to cover all situations as they can present different levels of risks.
However, in a recent judgment by Mr Registrar Baister (In The Matter of Cabletel Installations Limited) he referred to the question of value for money in considering a claim for remuneration by the joint administrators of Cabletel. In examining the legal principles he stated the following:
“I shall examine the main work streams and some of their sub categories and consider the time spent and whether it was justified; I shall have regard, insofar as I can, to the level at which work has been done; I shall consider the benefit of the work done and, to any extent appropriate, whether it was necessary. I shall then look at the larger picture and consider the case in terms of value. In doing so I shall have regard to the factors set out in the rules and to other factors peculiar to this case.
I shall bear in mind that time spent is a measure not of the value of the service rendered but of the cost of rendering it. I do not propose, therefore, to allow myself to be influenced to any real extent by the final figures which the administrators claim, since, it seems to me that, prima facie, they reflect the cost of time rather than the value of the service provided. I shall resolve any doubts I have against the administrators.”
Registrar Baister also dealt with the question of effectiveness, one of the criteria set out in Rule 2.47 (4)(c). He says: “I have no doubt that the administrators and their staff believe that they dealt with this administration effectively and I have no doubt that they did their best. I believe, however, that may have confused spending time on matters with effectiveness.”
It is worth noting that in October 2004 a new Practice Direction came into force. The Practice Direction sets out those matters to be addressed by an insolvency practitioner when application is made to the court to determine an IP’s remuneration. It is therefore likely also to be followed by IPs in providing information to creditor’s committees for the approval of an office holder’s remuneration. The Practice Direction emphasizes value for money as a guiding principle in the following terms:-
“‘The value of the service rendered’:- the remuneration of appointees should reflect and be fixed and approved so as to reward the value of the service rendered by the appointee, not simply to reimburse the appointee in respect of time expended and cost incurred.”
It seems to the IPC that value for money and effectiveness will, quite rightly, be more and more relevant when the Courts consider claims for remuneration. It is also a matter which a creditors committee or liquidation committee may well look at when assessing claims for remuneration. The RPBs will no doubt bear this is mind and give further guidance to their licence holders where necessary.
Joint Insolvency Committee
Throughout 2004 we have had regular contact with the JIC and in particular on key issues relating to the professional standards. A new Ethical Guide is being prepared for all insolvency practitioners closely following the Guide being developed by the International Federation of Accountants (IFAC).
The first draft has been considered and the completion of the IFAC guide is awaited before the final draft can be completed. The IPC is involved in these consultations as it considers that this is a key document for the future. Further assistance for IPs is being developed in the form of Insolvency Guidance Papers; So far papers covering Succession Planning and Control Of Cases have been issued. The IPC has been given the opportunity to study these papers and make comment before they were issued.
As indicated above under Regulation and Monitoring the JIC is now considering proposals by the IPA aimed at a more harmonized approach to monitoring and discipline. Any strengthening of the JIC to bring the RPBs together to work in closer harmony is not only good for the profession but also serves the public interest.
Aged Bankruptcy Cases
In the 2003 Annual Report, the IPC recommended that some guidance be issued to those IPs who were appointed Trustee in Bankruptcy on aged bankruptcy cases. The IS prepared a recommended protocol and, generally speaking, that protocol has been accepted and is effective.
Some of these cases date back to the late 80s/early 90s and in many cases the bankrupt/non bankrupt spouse were unaware of the Official Receiver/Trustee in Bankruptcy maintaining an interest in their property where there was more than likely negative equity. Similarly, in many of these aged cases, it has proved difficult/impossible to trace creditors and records have been lost or destroyed.
The process is often extremely stressful and emotional for the debtor and it is desirable that the Trustee finds the right balance between meeting his/her duty to realise assets for the benefit of creditors and showing understanding of and sympathy for the debtor's situation. Whilst the Protracted Realisations Unit of the IS has now, we understand, largely distributed these cases to IPs, thousands still remain to be processed by those IPs throughout the country. The Enterprise Act requires those properties to be addressed by 1 April 2007. Whilst these aged property cases are undoubtedly the most emotional, there are also several thousand aged cases where there is a pension to be realised and these again will require sympathetic and understanding treatment by the IP.