Insolvency remuneration – time-charging, or better?

Lawyers’ fees in class actions were the subject of a recent conference[1] paper by Sir Rupert Jackson, given in Melbourne, whose report in the UK has led to major costs budgeting reforms in the way lawyers must justify their fees. An Australian costs expert has extended this thinking to explain the need for insolvency professionals to change the ways they set their fees, away from time billing.  

The authoritative commentator on costs in Australia, Roger Quick, has explained in his text[2] many of the issues in the UK Jackson reforms.  In particular, he advocates the concepts and techniques of Legal Project Management and Alternative Fee Arrangements as tools to check, if not reverse, what he refers to as ‘institutionalised time billing’ of lawyers.  His text explains the changes that are happening in the UK and Australia in the legal field.

Quick also gives attention to insolvency practitioner (IP) remuneration, IPs being accountants without the long history, going back centuries, which Quick recounts in his text, of taxation of bills of costs of lawyers.

Insolvency remuneration

IP remuneration, given the nature of limited funds in insolvency, and its public interest demands, raises particular issues.  These extend to the remuneration of lawyers acting for them; with some suggestion made that the conservative time-based approach of IPs infects the billing methods of their lawyers.  (Liquidators are not entitled to receive costs agreements; oddly, bankruptcy trustees are).

In his text, at the conclusion of a comparative analysis of retainers by insolvency professionals, Quick suggests the following factors that should be considered for an answer to current Australian problems in remunerating insolvency professionals.

  1. More consideration of what is now the UK Insolvency Practice Direction of 10 July 2018 (IPD), including its definition of ‘proportionality’, which has been a live issue in Australia.
  2. A greater recognition of those concepts and techniques of project management and alternative fee arrangements, explained in detail on his book, “as tools to check, if not reverse, institutionalised time billing”. He sees time billing as being one consequence of the significant 2004 decision in Stockford, with the profession perhaps retreating to a conservative fee basis – time spent, often then discounted as some evident concession to how too much time was spent – since then.  He refers to the ARITA Code, which although it refers to other bases of remuneration, might be said to support the institutionalisation of time billing.
  3. A full consideration of current bases of remuneration in addition to percentage and updated hourly rates models.

Time billing set to continue

However, time billing in insolvency, of both IPs and lawyers, seems set to continue, and it has its merits, transparency for one.  Even then, it is criticised in the way it is explained. There is a view that the ARITA Code, and the close focus it demands for detailing the work done, may have led to IPs using its remuneration template mechanically, without regard to the need to explain to creditors, or the court, why the work done and claimed for was necessary and properly done.

Courts

There was some evident frustration of Justice Black in Hunter Valley Dental Surgery[3] in his saying that

‘liquidators and their advisers should not assume that information organised [in the manner of the ARITA Code] will, without more, be sufficient to explain the extent of the work done, or why that work was necessary or why the costs referrable to it were proportionate in the relevant circumstances, for the purposes of an application to the Court for approval of a liquidator’s remuneration.’

UK IPD

The new English IPD is to similar effect, using terms like “narrative description and explanation of” the matter, and “the reasons why it is or was considered reasonable and/or necessary and/or beneficial for such work to be done”.  The IPD also explains that the concept of proportionality applies to the level of detail required in the application itself, in comparison to the amount of fees sought, and, one would think, the level of attention given it by the Court.

ASIC

This was recently picked up well by ASIC in its recent bulletin. ASIC Corporate Insolvency Update – Issue 9 saying that

‘the better remuneration reports (accompanied by equally informative creditor reports) tell a narrative of what’s been accomplished since appointment. The time charges are supported by descriptive explanations of the work carried out, and what is to be done until the next milestone. After reading the report creditors should know how you will spend your remaining time and why.

Good remuneration claims rarely rely solely on the standardised remuneration report templates. … We encourage practitioners to go beyond just crossing out tasks that do not apply, and to appropriately customise the table. You should include descriptions that are not already part of the template if that helps to better describe your work. With affidavits, consider what information usually included in a remuneration report to creditors could be included in the affidavit to better inform the court’.

ASIC wisely suggests that IPs

‘think about what you look for when paying your own bills, would you query duplications and unexplained charges?’

Peculiarities of insolvency

Insolvency of its nature does complicate the issue.  One factor is that funds are limited, and proportionality of outcome is not necessarily a valid determinant.  Another is that IPs have public interest duties, which they must attend to, even though it may produce no dividend outcome. And another is that there is no client as such, and creditors tend to abdicate responsibility for oversighting the amounts charged.

IP remuneration is not at a stage where it is even considering the advances in law being suggested by Jackson and others. It suffices for the moment.

As explained elsewhere, the more important issue is the need for a resolution of the underlying responsibilities of IPs, and the division between their public and private responsibilities, for which their claimed remuneration is only the end product.[4] 

That warrants another post.

 

[1] Controlling the costs of class actions, IMF Bentham and UNSW National Class Actions Conference, 25 September 2018, Melbourne

[2] Quick on Costs, Thomson Reuters.

[3] In the matter of Hunter Valley Dental Surgery Pty Ltd (in liq) (No 2) [2017] NSWSC 1027

[4] See Keay’s Insolvency, 10th ed, 2018, Ch 1.

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