For AFSA’s 2019-20 Insolvency Compliance Program, a sample of administrations were reviewed for possible remuneration issues and delays in administrations. A common finding was that trustees and senior staff were completing low complexity work, but charging for these tasks at a senior level charge rate.
In administrations where this issue was found, the trustees refunded remuneration corresponding to the areas of concern with over-charging. Where a trustee is not willing to reduce their remuneration, the Inspector-General may conduct a review based on his own initiative, depending on the circumstances and facts.
- Trustees spending excessive time drafting reports to creditors
- Trustees spending excessive time reviewing reports to creditors – supervising and reviewing work is essential, however, concerns were raised where increased WIP entries possibly indicated rework.
- Trustees calculating income contributions and drafting assessments – rather than reviewing
- Trustees spending excessive time on file reviews – These refer to large WIP entries with minimal descriptions e.g. numerous entries of “Review status of bankruptcy” at 1 or 2 hours
- Senior staff spending excessive time on reviewing simple correspondence
- Trustees and senior staff completing administrative tasks
Relevant Legislation and Guidance Documents
AFSA expects the nature and complexity of the task to determine the rate charged to an administration. See Rule 42‑65 of the Insolvency Practice Rules:
“42-65 (2) The registered trustee must ensure that time billed for a task undertaken in conducting an administration is charged at the appropriate rate for the level of staff who would be reasonably expected to undertake the task”
Inspector-General Practice Statement 16 - Reviewing remuneration of trustees and costs of third party service providers also warns that such remuneration practices could potentially lead to a remuneration review being performed:
“3.11 Examples of the type of issues that may be considered sufficient to justify a [remuneration] review are:
the trustee is a sole practitioner and has charged principal rates for all the tasks carried out in the record of chargeable time that relates to his/her most recent remuneration claim. Many of the tasks were routine and would be expected to be charged out at a lower rate.”
There are going to be times where trustees and senior staff will need to take on low complexity work. For instance, where there are understaffing issues or limited resources in a firm. This is especially so with the impact COVID-19 has had on staff resources in insolvency firms.
There are also times that require trustees and senior managers to increase their involvement. Highly complex administrations require senior staff to properly supervise lower level staff to make sure appropriate steps are taken to recover property or collect contributions.
Should you, as a trustee or a senior manager, need to take on less complex work, it is expected that the hourly rate should be adjusted to reflect the level of staff that would have been appropriate for completing that type of task. To ensure the remuneration drawn is necessary and proper, consider:
- Adjusting hourly rates as you enter WIP entries – Is the hourly rate appropriate for the complexity of work undertaken? For example:
- For highly complex income contributions, a trustee may be required to be more involved in the calculations. This work can be charged at a senior manager rate, whereas a review can be charged at a trustee rate.
- For work on reports to creditors, a trustee may be required to draft the report because they are more acquainted with the complex issues involved. This work can be charged at a senior manage rate, whereas the review and signing of the reports can be charged at a trustee rate.
- Adjusting hourly rates when you are performing your regular review of timesheets
- Implementing average rates per task area – See paragraph 8.2.2 PSI 8: Remuneration of the ARITA Code of Professional Practice
- While working on Report to Creditors, the senior manager of a firm needs to go on carer’s leave suddenly. The report to creditors of a highly complex administration is half completed and due in a week. The trustee decides to draft the remainder of the report, as she knows all the complex issues and thinks she will take less time completing the report than another junior staff member.
After the report is completed, she reviews the WIP for time spent on the report and finds that 20 hours was charged. 12 hours of this was attributed to the trustee at a Director/Trustee rate at $595 per hour – 10.5 hours for drafting and 1.5 hour for reviewing. The trustee decides to lower her charge rate for the 10.5 hours drafting to a manager rate at $440 per hour.
- A trustee runs a small firm made up of himself and two other staff. One acts in the full time manager role, and the other, part time administration role. Knowing that he and the manager will need to take on tasks of lower complexity here and there, the trustee establishes set average rates to use when recording WIP entries:
- Trustee tasks: $500 per hour
- Manager tasks: $350 per hour
- Administrative tasks: $200 per hour
The trustee includes an explanation of how average rates work in the remuneration reports to creditors.
Assistant Director Technical
Am I still required to lodge my annual administration return while COVID-19 restrictions are in place?
Yes, all statutory returns are still required. If you are having difficulties complying with these requirements due to the coronavirus situation, get in touch with our team as soon as possible via email at regulation [at] afsa.gov.au
I’m finding it difficult to administer an estate due to the coronavirus crisis – I can’t get access to essential information. What can I do?
AFSA has decided to avoid section 77AA searches for the time being, in response to the crisis. Our staff will work with trustees on an alternate solution wherever available. If an estate cannot be progressed, you will need to document your reasons clearly to help inform both creditors and the Inspector-General of the delay.
What can I do about holding a creditor meeting? Can it be delayed until after restrictions ease?
Under the Bankruptcy Act, proposals other than to consider a composition or personal insolvency agreement can be put to creditors without a meeting – however, if a meeting is absolutely required we recommend an electronic option, conducted in accordance with the Insolvency Practice Rules.