There is more to insolvency practitioners’ (IP) remuneration than is usually presented, and this commentary explains relevant issues not generally addressed, and in a broader perspective. It is partly prompted by INSOL International’s August 2020 report on remuneration.
IP remuneration is typically said to be all about:
- ensuring their remuneration claims are proper and necessary, and
- accepting that what they do for that remuneration is properly asked of them.
What is not generally examined is:
- how much work was done by the IP, and how much of that was capable of being remunerated or not; or,
- even if it were to have been remunerated, whether it was work done in the interests of creditors, or, rather, was done in the public interest.
An examination of those two issues might show:
- much more valid work is done by an IP than is directly remunerated – in the order of 30-40%;
- at least some of that work is done in the public interest on behalf of the state. That may be ok, but is it transparent, and should it be the creditors, or the state, who pays for that work?
In practice, this opaque system of IP remuneration is addressed ad hoc, by IPs setting higher hourly charge out rates for paying estates, relying on the “swings and roundabouts”, risking recovery litigation, or simply doing little or nothing on non-paying estates, or refusing to consent to take them.
All this separates out IPs from other comparable professionals. But in other respects, things are comparable. IPs are not alone in having the potential to abuse the system, with many other ‘usual suspects’ too long to list. Nor are they alone in having asymmetric information, as any of us not familiar with car mechanics or dentistry will know. They are different in not having a direct client from whom they take instructions on what is to be done and who oversees their fees; on the other hand IPs have many overseers, not only the creditors but also the regulators, courts and media.
IP Remuneration – other perspectives – Murray 2020 – explains this more, for those who have time.
It is partly in response to INSOL’s Corporate insolvency practitioners, ethics and remuneration: Not a case of moral bankruptcy? of August 2020, which is scholarly and well argued, to a point. It makes a valuable contribution at a micro-level; but what is needed is to see how remuneration works at a macro-level – is there enough money in insolvency to address its aims?
This requires insolvency to sort out what interests it is supposed to serve – public and private, who does that work, to what extent, and who pays. In Australia at least, this is unclear, and I suspect elsewhere.