Bankruptcy remuneration challenge referred to mediation – Groll

Justice Jennifer Davies of the Federal Court has referred bankruptcy trustees’ remuneration to mediation, following a challenge by the trustees to the Inspector-General in Bankruptcy’s reduction in the amount of remuneration claimed.  

The Court has listed the matter for hearing on 14 and 15 December 2017, and Justice Davies has directed that any mediation be conducted by 30 November, with the mediator to then report to the court within a week as to whether the proceeding has been resolved.    

The Judge requires the mediation to be attended by the decision makers, along with their lawyers.   

Section 53A of the Federal Court of Australian Act allows the court to order mediation.

The presence of the Inspector-General should mean that any issues of public interest associated with the case are addressed; that is, it is not a mere commercial dispute over money.  Trustees also have their own fiduciary and public interest responsibilities, and the lawyers have their dispute resolution obligations.

Section 53A of the Federal Court of Australia Act allows the Court to order mediation.

The public record does not reveal the nature of the dispute but it appears to involve the Inspector-General’s decision to reduce the trustees’  remuneration in the estate by well over $250,000.

The case may give insights as to the way that the Inspector-General in Bankruptcy determines a trustee’s disputed remuneration. At the moment this is not evident since the IG’s reasons for decision are not published. A Federal Court review and decision may offer the transparency and guidance that the law and the IG does not presently offer.

The matter is being decided under the old law. A major change introduced by the Insolvency Law Reform Act is that the IG is now required to apply the same remuneration factors that the Courts have been applying in determining liquidators’ remuneration under s 473(10) of the Corporations Act – whether the work was necessary and properly performed; the time taken; the quality of the work and its complexity; whether there were any extraordinary issues, or higher levels of risk or responsibility; the value and nature of the assets; the number and nature of the creditors; the time taken; and any other relevant matters. See s 60-15 Bankruptcy Rules, and also s 60-12 Corporations Schedule.

The extensive case law in bankruptcy on proportionality will no doubt come under consideration.

In effect, the IG is acting in a quasi-judicial capacity, paralleling the same powers still exercised by the courts in corporate insolvency; and the same powers now being exercised by Justice Davies. 

It remains a matter of speculation why the government declined to give ASIC similar powers.

While bankruptcy has well developed case law principles for determination of trustees’ remuneration, these have not developed in terms of the former s 473(10) reasonableness factors. Nevertheless, bankruptcy has established principles and case law, often relied upon in corporate cases.  

The corporate case law will also need to be closely considered by the IG in determining a trustee’s remuneration under the new law. There is little reason in principle why trustees’ and liquidators’ remuneration should be assessed differently.

Necessarily in a case like this, the trustees have sought access to the IG’s working papers by which the decision to reduce the remuneration was made, in order to test the IG’s decision.

In a similar way, it is anticipated that reviewing liquidators’ working papers will be accessible on any court challenge to their remuneration determinations, under s 90-26 Corporations Schedule.  

The case before Justice Davies may provide an interesting example of the application of judicial rigour to how the IG’s delegates exercise their powers under the new law.

See VID516/2017 Yeo & Rambaldi (as trustees of the estate of Groll) v Inspector-General in Bankruptcy and Samuel Linton Groll (In His Capacity As Guardian And Administrator Of Harry Samuel Groll). 

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