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Bankruptcy trustees’ remuneration challenge – continued

A Victorian Supreme Court decision gives some background to the regulator’s decision to reduce bankruptcy trustees’ remuneration by over $277,000, a decision being challenged in the Federal Court on 30 August 2017. 

Groll was made bankrupt pursuant to a sequestration order on 2 September 2014.

A guardian and administrator was appointed to his estate on 18 June 2015.

The trustees issued and proposed to serve a writ for proceedings against defendants for unpaid rent. On 19 October 2015, the guardian’s lawyer directed the trustees not to take any further steps in those proceedings. The trustees agreed because it was anticipated that the bankruptcy would be annulled with all creditors to be paid in full.

That annulment has been delayed because on 24 December 2015, the guardian complained to the Australian Financial Security Authority (‘AFSA’) about the trustees’ administration of the estate, and tax related issues also caused delay.

A dispute then arose between AFSA and the trustees as to their remuneration.

According to the Supreme Court, over 3 months later, on 31 March 2017, AFSA informed the trustees that it had accepted the complaint for investigation and it outlined various observations as a result of inspecting the trustees’ files.

On 1 May 2017, the trustees received a letter from AFSA saying that it had decided to disallow over $277,000 of the trustees’ remuneration, and required that sum be refunded.

According to the Supreme Court, AFSA has not informed the trustees of any decision made regarding the other matters involved in the complaint.

On 16 May 2017, the trustees applied to the Federal Court to appeal AFSA’s decision. That is set down for hearing on a preliminary question as to the nature of the appeal on 30 August 2017.

See my earlier commentary on that.

The Supreme Court extended its writ to February 2018.

See Yeo & Anor v Dannysam Pty Ltd & Ors [2017] VSC 447.

Comment

Without commenting on this case in any detail, it is assumed that due process was observed by AFSA in relation to the complaint and the reduction in the remuneration.

IGPS 10

The case draws attention to Inspector-General Practice Statement 10 – IGPS 10Complaint handling process for complaints against bankruptcy trustees and debt agreement administrators. In this, AFSA purports to be able to “determine that a practitioner has breached their fiduciary duties, the legislation or standards required”, leading to AFSA “requesting the practitioner to take remedial action”. Also, AFSA may issue a report under s 12(1B) of the Act regarding the results of the investigations, with copies “provided to creditors, the debtor, other disciplinary bodies and/or relevant professional bodies”. IGPS 10 makes no reference to referral of information to the prescribed professional disciplinary bodies, such as ARITA. It also makes no reference to the other new processes in Schedule 2.

As a general comment, it is not for AFSA to determine that a trustee has breached their fiduciary duties, unless that finding is to be obtained in court proceedings, for example by application under Division 45.

Again, due process is assumed to apply in such cases.

Timing

IGPS 10 further says that AFSA aims to complete its investigations within 28 days of receiving all relevant information. If it is to take longer, AFSA gives the complainant an interim report about the progress every 28 days. AFSA aims to finally provides the complainant with a written response, copied to the trustee, within 60 days.

Time spent on a complaint

In relation to time spent by a trustee on responding to a complaint, AFSA says it “supports” the ARITA Code, that time is generally not billable unless the complaint is “spurious”.

“As to what is considered ‘spurious’, we will advise parties when it is considered appropriate for a trustee to charge for their time”.

Again, it is not for AFSA to simply say that that attention to “non-spurious” complaints is not billable, except through a formal process of determination of the remuneration; and certainly not in light of the new trustee remuneration determination criteria commencing on 1 September.

No comment

No comment is made on IGPS 10’s other views, that

if an “estate appears to have a sizeable surplus of assets over liabilities …there is little incentive for the practitioner to speedily finalise matters”.

The progress and outcome of this case is being monitored.

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