By Liyan Tay and John Nicolaides
During the course of an external administration or bankruptcy creditors often wonder how the fees of a practitioner are charged. Often creditors are unaware of their rights to information and the methods used by a practitioner to calculate fees. This article aims on providing a short insight regarding how the fees and disbursements are charged during an administration.
A practitioner is entitled to be paid reasonable fees for the necessary work required to complete an administration. The costs to a practitioner are as follows:
- Fees for work performed by the practitioner (and his staff).
- Internal disbursements incurred (e.g. photocopying, printing, postage cost).
- External disbursements incurred (e.g. legal fees, valuation fees, auctioneer’s fees).
Internal costs will need creditor approval before being reimbursed. External disbursements are usually charged at cost and do not require creditor approval.
There following are a number of methods which can be utilised to calculate a practitioner’s fees:
- Time cost basis: calculated on the time spent conducting the job in accordance with the firm’s hourly rates.
- Fixed fee basis: total fee charged is estimated and agreed to at the start of the administration.
- Percentage basis: Fees is a percentage of a variable (e.g. total asset realisation)
- Contingency basis: Fees is contingent upon a set outcome being achieved.
At Vincents and in the majority of other insolvency firms the “time cost basis” is the preferred and most utilised method as it provides a fair reflection of the work performed by the practitioner.
A practitioner’s fees must be approved by one of the following ways:
- By resolution of creditors (at a meeting or without a meeting).
- By a committee of inspection (at a meeting).
- By the Court.
If fees are not approved by a relevant party, the practitioner is entitled to be paid reasonable fees up to a maximum of $5,000 excluding GST (indexed annually).
A practitioner will send creditors an Initial Remuneration Notice and a Remuneration Approval Report which estimates the cost of the administration and also details the work performed and or to be performed.
Instead of convening a creditors meeting and in order to minimise costs, a practitioner can put Proposals to Creditors by giving notice in writing. A fee proposal notice would include reasons for the proposal, invite creditors to vote on the proposal, and specify a reasonable time for replies to be responded to. A resolution is passed if the majority in number and value of the creditors voted ‘yes’ and not more than 25% in value of creditors responding objected to the proposal being resolved without a creditors meeting.
Rights and Powers of Creditors
If creditors do not believe that the proposed fee is reasonable they should contact the practitioner directly to raise any concerns. Voting on the fee proposal is not mandatory and creditors may elect to abstain from voting.
Creditors are also able to request that a meeting of creditors be called and may make reasonable requests for information from a practitioner. If necessary, creditors may also apply to Court for a review of the work completed by the practitioner.
An Important Message
While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.