A key principle of personal insolvency is that creditors should have primary control over remuneration in an estate administration. ...
A key principle of personal insolvency is that creditors should have primary control over remuneration in an estate administration.
To make accurate decisions, creditors must be adequately informed, in a timely manner. Trustees are required to issue an Initial Remuneration Notice (IRN) early in the administration.
Where applicable, trustees may also need to issue a Remuneration Claim Notice (RCN).
AFSA receives applications for remuneration determination and applications for review of trustee remuneration. The Inspector-General has noted that remuneration notices are sometimes not issued correctly. In addition, some notices are not issued at the correct time, or do not include all the required information - as set out in the legislative requirements.
Initial Remuneration Notice
IRNs are sometimes not issued as required. IRNs inform creditors and the debtor about:
- how the trustee seeks to be remunerated
- the reason(s) why
- the rate of remuneration
- an estimate of the trustee’s remuneration
- how disbursements will be calculated.
When applying for remuneration determination, applications may be refused if an IRN has not been issued.
Section 70-35 of the Insolvency Practice Rules (Bankruptcy) 2016 (the Rules) states what information the IRN must contain and when it must be given to the debtor and the creditors.
The IRN must be given:
- within 20 business days after the day the trustee receives the regulated debtor’s statement of affairs (SOA); or
- within 7 days after the end of the 60-day period following the date of the bankruptcy if the trustee does not receive the regulated debtor’s statement of affairs.
Remuneration Claim Notice
Bankruptcy legislation provides measures to keep creditors and debtors informed, and to support trustee transparency in the administration process.
The use of the RCN can sometimes be misunderstood and incorrectly communicated to creditors and debtors. Understanding the purpose of the RCN benefits both creditors and debtors. A well-prepared RCN assists with streamlining the process and reducing delays.
While trustees are entitled to fair remuneration, creditors also have a right to understand both the progress of an administration and the extent of the trustee’s fees - particularly as remuneration reduces the dividend available to them.
An RCN provides a structured way of explaining why there has been a variation in fees by the trustee. It should detail relevant information where:
- the trustee previously obtained a resolution about their fees for a given period; and
- the time costs actually incurred during that period were greater, leading to an increased remuneration sought.
Points to note – an RCN:
- can only be issued once approval has been obtained for the remuneration relating to the relevant period of the administration
- is used to provide a detailed breakdown of proposed changes to previously approved remuneration and creditors or the debtor have asked for a further explanation.
Creditors or debtors can request an RCN if they are dissatisfied with a trustee’s explanation for remuneration. This request can be made within 20 business days after receiving a remuneration report.
Creditors have the right to:
- inspect the books kept by a trustee, relating to a debtor’s estate, at all reasonable times
- request the trustee give information, provide a report or produce a document
- request an RCN.
An RCN cannot be issued in a situation where remuneration for any given period has not been approved. If the conditions for issue are not met, the RCN is not valid, and does not form part of the process.
Tip: If the process of how remuneration and approvals are explained to the creditors at the outset, and they are kept informed, then the need for the creditors or regulated debtors to request an RCN may be avoided.
Further information
AFSA’s Inspector-General Practice Direction 18 explains trustee remuneration notifications including references to the relevant legislation and provides suggested templates for both the IRN and the RCN.
