AFSA outlines key information for creditors on trustee remuneration

The Australian Financial Security Authority (AFSA) has today published comprehensive information for creditors to help explain the trustee remuneration process, and why it is important for creditors to exercise their rights.

As part of the personal insolvency system, individuals and businesses owed money in a bankruptcy or personal insolvency agreement may be asked to approve a trustee’s remuneration.

Trustees are entitled to be paid reasonably for the work they perform, and be reimbursed for out-of-pocket costs – however, creditors have the right to determine if the proposed payment is fair for the work completed.

AFSA Chief Executive Hamish McCormick highlighted the importance of creditors getting involved in the system.

“Our data has shown that many creditors remain passive about setting trustee remuneration,” Mr McCormick said.

“Many creditors may not realise that due to the operation of the bankruptcy laws, creditors pay for the trustee’s services during an administration. Remuneration is prioritised ahead of returns to creditors.

“This is why creditors have the power to approve the amount of remuneration, as well as the method of calculation – which could be as an hourly rate, a fixed fee or a percentage of the total realisations”.

“We believe prices should be set in a similar way to other markets – by an agreement being reached between the trustee as a service provider and creditors as the receiver of services.”

In March 2020, AFSA released its first in-depth market report, Registered trustee remuneration in the personal insolvency system. Pleasingly, the report did not uncover systemic issues, but it did identify instances of poor practice that could be addressed with a higher rate of involvement from creditors.

The information sheet, produced in partnership with the Australian Restructuring Insolvency & Turnaround Association (ARITA), discusses the role of both trustees and creditors, as well as providing a step-by-step guide to the process of considering and approving trustee remuneration.

The information sheet also details the avenues of dispute available for creditors if they believe the remuneration is unfair.

More information about the remuneration process, including the new creditor information sheet, is available on the AFSA website at afsa.gov.au.