A case study examining a complex bankruptcy administration where a person who was bankrupt sought a review of their trustees’ remuneration by AFSA.
An unemployed, person known as Ms M, is made bankrupt for unpaid fees. While unemployed, she was receiving significant ongoing distributions from family trusts to cover her expenses. Either at the time of her bankruptcy or through the course of her bankruptcy, she acquired approximately $6m in assets and had $500,000 in liabilities.
Ten years later, the bankruptcy was annulled after creditors received full repayment of debts including interest. Ms M also received a significant surplus.
This was a complicated bankruptcy administration and Ms M was often uncooperative. It is widely known that these types of administrations are time consuming for trustees. Trustees command high hourly rates for dealing with such complex matters as efficiently as possible.
Ultimately, the trustees charged in excess of $1.2m for the administration of this estate. This amount did not include the trustees’ disbursements or legal fees.
Ms M subsequently sought a review of the trustees’ remuneration by AFSA. While she did not explain why the remuneration was considered excessive, AFSA decided scrutiny of the remuneration was warranted given the amount charged and considering the complexity of the tasks undertaken by the trustees. Upon investigation and review by AFSA, the trustees originally agreed to reduce their remuneration by $5,200. After much negotiation between AFSA and the trustees, it was agreed that $330,000 would be reduced from the total fees of $1.2m. This reduction in fees was returned to Ms M.
Many reasons for the reduction in remuneration are consistent with the themes in AFSA’s Remuneration report which was published in March 2020.
The trustees overcharged and overserviced in the following areas:
- work performed at a level not commensurate with the level of complexity
- many levels of the trustees’ staff charging time for the same piece of work
- a failure to take a minimalist approach in an administration with a significant surplus of assets over liabilities.
The trustees have committed to working with AFSA to improve their processes, systems and controls relating to remuneration. AFSA will be closely monitoring those improvements and if positive changes are not made, will consider formal disciplinary action.
*These case studies do not constitute legal or financial advice. You should consider whether the options referred to in the case studies are appropriate for you, and seek advice if necessary, before taking any action.