Fees of insolvency practitioners and lawyers

The commentary following was issued on 15 August 2021.  It is reissued for historic interest only, perhaps, on the assumption that fee relations between lawyers and IPs have improved in the ensuing three years?

After Jason Harris and I wrote about Justice Michael Lee’s comments on the high charge out rates of insolvency practitioners, I then started to receive emails and calls from IPs about lawyers’ fees, the tone of which perhaps indicating a certain underlying disharmony between the professions.  This is a brief coverage, which ends nowhere.

“What Justice Lee is missing”

“What Justice Lee is missing”, I was emailed, was that

“insolvency practitioners set a rate to compensate for the average 30% in write-offs they incur in doing work with no prospect of a recovery”,

which is related to the point of our article; and another point, as to why IPs seem to accept that.

“… (D)id it ever cross Justice Lee’s mind to query the charge out rates for the lawyers who were acting in respect of the application for the insolvency practitioner – I bet it didn’t!”.

“Lawyers on the other hand, do not have the above write-off issue – they rarely don’t get paid, and in fact are paid in priority to a liquidator’s/trustee’s fees in a recovery.  Somewhere along the past few years that I have been in the profession, lawyers have decided to up their rates (while no one is looking) and no one is questioning it – it is quite common for a partner of a law firm to charge over $600-$800 plus GST (and I am talking mid-tier firms) an hour. Who’s looking at that – no one!”

Other comments came in and others again failed to clear my email propriety filter.

Private comments

But these were private comments to me, not public, for perhaps understandable reasons but showing an unwillingness to be seen as “difficult” as one IP said, or through “fear of being burned at the stake by lawyers everywhere”, wrote another, no doubt metaphorically.  That IP said that “very rarely will an IP have the discussion on fees with a lawyer – from a practical/business perspective the IP runs the risk of never getting a job referral from that lawyer again.  Past experience shows this”.

It would be churlish to comment on the proper duty of the professional in response to that comment.

Battalions of lawyers

Then there were those emails that informed me of the standard array of counsel and lawyers assembled in battalion style for many matters – one IP referred to certain lawyers’ “scorched earth” policy in defending claims.

Direct briefing – “upset no end”

We had also suggested direct briefing, as to which, I was told, there is a “playing field” which “would be upset no end”.  Though that might depend on the quality of the barrister.

A little unfair

“So while I hear you that it is not one profession against another….it seems a little unfair at the moment from our side of the fence. I don’t recall seeing any cases wherein the Judge made any comment about how much legal fees were being paid – where’s the proportionality test then?”.

My comments

Judges do criticise lawyers’ fees including, in one case, the use of a law firm rather than a barrister, to draft pleadings –

“… nearly $17,000 for preparation by the solicitors for the estimated two day hearing, while the costs of counsel’s preparation was only $6,400, …”.[1]

And recently, the Federal Court said that the “plaintiff had already filed and served written submissions of some 38 pages on the substantive application” and although the other parties

“were given leave to file and serve submissions of similar length … that should not be taken as an encouragement to do so. The parties must be assiduous to avoid litigating the present application in a way that is disproportionate to what is at stake and is contrary to the overarching purpose of this Court …”.[2]

Then there are the judges themselves, with time taken and length of judgments often seemingly disproportionate to the needs of the parties; including in cases where the decision concerns the remuneration of the IP.

We should not forget Australian insolvency law, often unclear, inconsistent and unreformed despite calls for change. Fees charged are an indicator of work required to be done, of which insolvency law is very demanding, and often misdirected.

The law of lawyers and IPs

As to IPs and lawyers, they each have to deal with the regulatory requirements of their respective professions, the hue of the red tape brightened by the inconsistency of the laws.  IPs are separately regulated by ASIC and AFSA, depending on the type of insolvency, each regulator with its similar but different independence and remuneration and funding requirements, and litigation responsibilities. And that extends to the courts, which are partly divided along the same corporate-personal lines, with irregularly harmonised rules.

Then the lawyers themselves have different costs disclosure arrangements for IPs depending in the state they are in (ie, where the practise),[3] and even in the two uniform states there is a difference in costs disclosures between liquidators and bankruptcy trustees.[4]

Nothing new, really

None of this is new, there being some history of tension between accountants and lawyers, in the insolvency area, since the 19^th century, whether it be fees, or competition for types of work, or status.  At least between lawyers and IPs there has developed what is said to be some mutual symbiotic working relationship, each needing the other. Competition is more to be found intra IPs and lawyers, rather that extra.  Though tension is never far away with one lawyer who is qualified to be an IP weighing up the options in saying “if I start taking appointments that’s the last work I get from the accountants”, taking a broad view of the term ‘accountant’.

All this may well be resolved by the many newly qualified professionals I meet who are equally qualified in law, accounting, economics and finance, such that they do not fit into one or other category of lawyer or accountant, and who see insolvency from the perspective of the person or business, rather than from the structures dictated by law and accounting. How odd….

But this is all getting off track from our original comment on IP fees, and the role of the state, about which readers are no doubt far more interested. So

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[1] Armstrong Scalisi Holdings Pty Ltd v Piscopo (Trustee), in the matter of Collins [2017] FCA 423.

[2] Karellas Investments Pty Ltd v FW Projects Pty Limited (in liq) [2021] FCA 870 at [51].

[3] Legal Profession Act 2008 (WA) s 263; Legal Profession Act (Qld) 2007 s 311.

[4] Legal Profession Uniform Law (NSW) (Vic) s 170.