Trustees in Bankruptcy

The payment of Trustees in Bankruptcy is dealt with in rules 6.138-6.142C of the Insolvency Rules 1986. While the discussion here is about Trustees in Bankruptcy, the same rules apply to liquidators.

Where a Trustee is appointed the method of payment must be decided by the creditors' committee of by a resolution of a meeting of creditors. The ways a trustee can be paid are by either:

a percentage of the value of the assets in the bankrupt’s estate which are realised or distributed, or by a combination of the two; or
reference to the time properly spent by the trustee in bankruptcy and their staff in dealing with matters arising in the bankruptcy.

When deciding the appropriate method they must take into account:

the complexity (or otherwise) of the case,
whether the trustee is taking on any responsibility of an exceptional kind or degree,
how effective the trustee appears to be carrying out their duties, and
the value and nature of the assets in the estate.

In default of a decision by the creditors’ committee or a meeting of creditors, the trustee is entitled to remuneration by reference to percentages on realisations and distributions. If the trustee thinks this will be insufficient payment or the creditors think it will be too much they can apply to the Court. The Court can either to vary the basis or reduce the amount to be paid. The bankrupt is entitled to challenge the method of calculating the fees, subject to a requirement for the court’s permission.

Where a creditor or the bankrupt wishes to challenge the level of fees at the end of the bankruptcy they can apply to the Court to assess the amount to be paid. The procedure to be followed on the application is a matter for the Court and will depend on the circumstances of the case. Firstly, the Court must consider whether the charges appear reasonable and whether a challenge is therefore proportionate. If the challenge is to proceed then where the trustee has already provided considerable information on the work done the challenger will be expected to produce detailed Points of Dispute. Where there is insufficient information the trustee would normally have to provide detailed information first.

The principles normally to be applied are set out in The Practice Statement: The Fixing and Approval of the Remuneration of Appointees (2004). The Practice Statement sets out the following guiding principles to be applied when assessing the amount that should be paid:

‘Justification’: It is for the appointee who seeks to be remunerated at a particular level and/or in a particular manner to justify his claim and in order to do so the appointee should be prepared to provide full particulars of the basis for and the nature of his claim for remuneration.

‘The benefit of the doubt’: if after considering the evidence there remains any element of doubt as to the appropriateness, fairness or reasonableness of the amount sought to be fixed and approved (whether arising from a lack of particularity as to the basis for and the nature of the appointee’s claim to remuneration or otherwise) such element of doubt should be resolved by the court against the appointee.

‘Professional integrity’: The court should give weight to the fact that the appointee is a member of a regulated profession (where such is the case) and as such is subject to rules and guidance as to professional conduct and (where such is the case) the fact that the appointee is an officer of the court.

‘The value of the service rendered’: The remuneration of an appointee should reflect and should be fixed and approved so as to reward the value of the service rendered by the appointee, not simply to reimburse the appointee in respect of time expended and cost incurred.

‘Fair and reasonable’: The amount of the remuneration to be fixed and approved by the court should be fair and reasonable and represent fair and reasonable remuneration for the work properly undertaken or to be undertaken.

‘Proportionality’ - (i)‘proportionality of information’: in considering the nature and extent of the information which should be provided by an appointee in respect of an application for the fixing and approval of his remuneration the court, the appointee and any other parties to the application shall have regard to what is proportionate by reference to the amount of remuneration to be fixed and approved, the nature, complexity and extent of the work to be completed (where the application relates to future remuneration) or that has been completed by the appointee and the value and nature of the assets and liabilities with which the appointee will have to deal or has had to deal;

(ii)proportionality of remuneration’: the amount of remuneration to be fixed and approved by the court should be proportional to the nature, complexity and extent of the work to be completed (where the application relates to future remuneration) or that has been completed by the appointee and the value and nature of the assets and/or potential assets and the liabilities and/or potential liabilities with which the appointee will have to deal or has had to deal, the nature and degree of the responsibility to which the appointee has been subject in any given case, the nature and extent of the risk (if any) assumed by the appointee and the efficiency (in respect of both time and cost) with which the appointee has completed the work undertaken;

‘Professional guidance’: In respect of an application for the fixing and approval of the remuneration of an appointee, the appointee may have regard to the relevant and current statements of practice promulgated by any relevant regulatory and professional bodies in relation to the fixing and approval of the remuneration of an appointee. In considering an application for the fixing or approval of the remuneration of an appointee, the court may also have regard to such statements of practice and the extent of compliance with such statements of practice by the appointee.

‘Impracticability’: where the appointee has not, either upon or shortly after the commencement of his appointment, sought to have the basis upon which his remuneration is to be fixed approved by the members of the partnership or the company, the creditors’ committee, the liquidation committee or the general body of creditors (as appropriate) and in circumstances where the appointee considers that it will be impracticable to have his remuneration fixed and/or approved in such a manner, he may, as soon as reasonably practicable after his appointment, apply to the court to have the basis upon which he is to be remunerated fixed and for directions as to the manner in which his remuneration is to be approved (which may include provision for payments to be made on account). In circumstances where such an application is not made but the appointee subsequently makes an application to the court for the fixing and approval of the whole or any part of his remuneration, an explanation as to why no earlier application was made shall be provided to the court.

Further Information: Conditional Fee Agreements; Contractual Costs; Court of Protection; Fixed Costs; Mortgage Repossession Costs - How legal costs on repossession can be challenged; Small Claims Costs - What costs can be recovered in small claims

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