Debt Solicitors

In the current economic climate with escalating debt problems and an increasing number of personal insolvencies, it would appear that trustees’ in bankruptcies are figuratively on the winning team in terms of fees. However recent changes to the law and case law have illustrated that now more than ever there is to be greater scrutiny of extortionate trustee’s fees which are borne out of the ‘set the timer’ charging culture.

Facts of case A

The trustee in bankruptcy’s schedule indicates a claim for his remuneration was £286,440.70 in order to settle the bankruptcy petitioner’s costs of London Borough Brent Council for the sum of £939.25 and other liabilities to creditors totalling £66,205.27. Does this seem proportionate?

Proportionality

Notable recent cases concerning the very issue of proportionality include:

• Hunt v Yearwood-Grazette (2009), a trustee failed to explain the benefit accrued to the bankruptcy it was held that remuneration claimed was unjustified.
• Paul Simon v Tim Brown (2007), it was ordered that the trustee in bankruptcy’s remuneration be fixed on a time spent basis but that which is proportional to the bankrupts estate and complexity of the case. Importantly in this case a reduction of almost 40% of the trustee’s fees was made.

The Insolvency (Amendment) Rules 2010 that came into force on 6 April 2010 symbolize the most extensive overhaul of the Insolvency Rules since 1986.

There are many significant changes made by the 2010 rules however specifically in relation to trustee remuneration the rules exemplify the basis which it should be fixed which is that remuneration must be appropriate to the work for which remuneration is sought. In fixing remuneration it must be taken into account specific factors including, the complexity of the case, whether an exceptional level of responsibility has been assumed, how effectively the work has been done, and the value and nature of the assets dealt with by the administrator.

Furthermore, the rules go on to clarify that a trustee's remuneration may be calculated as a percentage of the value of the assets in the estate that he realises or distributes, by reference to time spent, or as a fixed fee. Moreover different basis of charging can be adopted for different aspects of the bankruptcy.

Importantly the 2010 rules encompass a modernised method to challenge the remuneration of a trustee in bankruptcy, in such that a bankrupt who applies to annul his bankruptcy may also challenge the basis or amount of the trustee's remuneration at that time. The court can reduce the trustee's remuneration and order that any excessive remuneration be paid into the bankruptcy estate.

Conclusion

Whilst the 2010 rules are fresh in the arena and practical application of them is yet to be seen there has been notable case law (as described above) elucidating that challenges to trustees remuneration will be upheld in cases of disproportional charging. Perhaps most significantly the medium for such challenges to take place has been broadened by the 2010 rules.

Dharmista Maisuria