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Key
Activities - Fees and disbursements
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.
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