This is a paper I gave at the recent International Insolvency Research Symposium on what I termed “revisiting insolvency practitioners’ remuneration”, offering a different focus from that of controlling and oversighting to one of examining the work actually needing to be done in an insolvency for which remuneration is claimed. One purpose in doing this is to temper what I think is an overly regulatory approach to IP remuneration; another is then to see some potential for research and law reform from the focus on the work involved in administering an insolvency.
I cite Michael Kirby at various points from his insightful article of some years ago, who said we need to face the fact that insolvency work is “inherently expensive”, and that it is “unreasonable to demand that skilled professionals should perform their functions at low cost”. And perhaps it is expensive, in my view, because the law requires too much, or at least not in any strategic way, and needs reform. Proportionality, the big regulatory focus, is inherently incompatible with most aspects of an insolvency administration except in large estates; the smaller the estate the less proportionality will have any significance at all.
What I call the “elephant in the room” is the extent to which a proportion of the work of insolvency practitioners is in fact unfunded meaning that if there are no/inadequate assets, work done in those matters will not be remunerated. The elephant is little acknowledged from a political or regulatory perspective, and only begrudgingly so. The sources of IP remuneration are often not easy and, adversely, create distortions in the insolvency processes. How many preference claims are brought to recoup remuneration?
Getting back to the work required, and the expense, Michael Kirby calls for “greater efficiency and more realism in the administration” of estates. The law needs to be changed to risk manage the process.
That law reform process needs more data. AFSA gives some global figures, for example that in all estates administered by private registered trustees, remuneration constitutes about 25% of receipts; though where a dividend is paid, this rises to 40%. Swings and roundabouts? The industry holds the core data, which it seems reluctant to release. The courts could also have a role.
There is more to IP remuneration than regulating excessive charging. Rather remuneration highlights a range of idiosyncratic features of insolvency law and practice that should at least be acknowledged when remuneration is being assessed, or challenged, and which should provide some focus on aspects of the law with a view to their reform.
Comments are welcome.