The Costs and Benefits of Regulating the Market for Corporate Insolvency Practitioner Remuneration

• DOI: http://doi.org/10.1002/iir.1239
• Author: Jennifer Dickfos
• Date: 01 March 2016
• Published date: 01 March 2016

The Costs and Benefits of Regulating the

Market for Corporate Insolvency

Practitioner Remuneration

Jennifer Dickfos*

Griffith University, Gold Coast, Australia

Abstract

The release by the Australian Treasury on Friday, 7 November 2014 of the Insolvency

Law Reform Bill (ILRB) 2014 throws the spotlight once again on corporate insolvency

law reform in Australia. Significantly, the ILRB 2014 identifies amongst its purposes

two objectives with respect to Corporate Insolvency Practitioner (CIP) remuneration re-

form. Namely, to promote market competition on price and quality and improve the

overall confidence in the professionalism and competence of insolvency practitioners.

This paper considers whether the proposed CIP remuneration reforms outlined in

the ILRB 2014 will effectively achieve these objectives. Where it is considered that re-

forms are misdirected, further changes, informed by UK insolvency reform proposals,

are considered. Copyright © 2015 INSOL International and John Wiley & Sons, Ltd.

I. Introduction

The release by the Australian Treasury on Friday, 7 November 2014 of the Insol-

vency Law Reform Bill (ILRB) 2014 throws the spotlight once again on personal and

corporate insolvency law reform in Australia, which at best has been a protracted

process. The regulation of the Australian insolvency industry and its practitioners

in particular has been the subject of no less than eight major reviews and enquiries

over the last 25 years.

1

The change of government in Australia in 2013 saw the

*E-mail: j.dickfos@griffith.edu.au

1. For a comparison of the various recommenda-

tions made by The Australian Law Reform

Commission (ALRC), General Insolvency Inquiry

Report No. 45 (1988) known as the Harmer Report

Commonwealth of Australia, Review of the Regula-

tion of Corporate Insolvency Practitioners known as

the Working Party Report 1997 Parliamentary Joint

Committee on Corporations and Financial Services,

Corporate Insolvency Laws:A Stocktake, known as the

PJC Report and Parliament of Australia, Senate

Economics References Committee, The Regulation,

Registration and Remuneration of Insolvency Prac-

titioners in Australia: The Case for a New Frame-

work (2010) known as The Senate Report see Jennifer

Dickfos, ‘The Regulation of Corporate Insolvency

Practitioners: 25 Years on from The Harmer Re-

port (or Everything Old is New Again)’(2014) 2

NIBLeJ 3.

Copyright © 2015 INSOL International and John Wiley & Sons, Ltd. Int. Insolv. Rev., Vol. 25: 56–71 (2016)

Published online 15 July 2015 in Wiley Online Library

(wileyonlinelibrary.com). DOI: 10.1002/iir.1239

temporary stalling of insolvency law reform with the mothballing of the ILRB

2013. However, the 2014 ILRB mirrors to a large extent the 2013 version.

Significantly, with respect to CIP remuneration reform, the ILRB 2014 iden-

tifies amongst its purposes two objectives that earlier reviews, such as the Harmer

Report, the PJC Report and the Senate Committee Report also sought to achieve:

(i.) Promote market competition on price and quality.

(ii.) Improve the overall confidence in the professionalism and competence of insolvency

practitioners.

2

The important role remuneration plays in the development, performance and

public perception of the insolvency practi tioner (IP) profession cannot be

overstated. Remuneration is one of seven benc hmarks identified by the European

Bank for Reconstru ction and Development (EBRD) in their review of IPs across

27 of the 35 countries w here the bank invests.

3

The EBRD considers that not only

a statutory framework for IP remuneration should exist to regulate the payment of

IP fees, to provide incentives for IPs to perform well and to protect stakeholders

(including the payment of IP fees in liquidation) but a more rigorous assessment

ofhoweffectiveIPsareintheirworkandrelated practices should extend to the

issue: do IPs provide ‘value for money’?

Public confidence and trust in the corporate insolvency regime, including its

practitioners, requires Corporate Insolvency Practitioners (CIPs) receive a fair

and reasonable amount of remuneration to perform their role proficiently so as

to allow financially troubled companies to remain in business, or, where this is im-

possible, to maximize the returns of vulnerable creditors. However, media reports

4

emphasizing the excessive level and poor disclosure of CIP remuneration continue

to dog the insolvency profession reducing the public’s confidence and trust in CIPs.

The conundrum is creditor approval of CIP remuneration is inherently con-

flicted. CIPs are entitled to be adequately rewarded for their services. However,

creditors’returns are directly impacted by the level of CIP remuneration paid,

2. Commonwealth of Australia, Exposure Draft Insol-

vency Law Reform Bill 2014 [1.1].

3. For details of the seven benchmarks, see European

Bank for Reconstruction and Development, Assess-

ment of Performance of Insolvency Office Holders Dis-

cussion Paper (EBRD, 2012) (EBRD Discussion Paper)

Available at www.ebrd.com/downloads/legal/insol-

vency/discuss.pdf For the Final Report, see European

Bank for Reconstruction & Development, Assessment

of Insolvency Office Holders: Review of the Profession

in the EBRD Region, (EBRD, 2014) available at

http://assessment.ebrd.com/insolvency-office-holders

/2014/report.html Both reports are informed by the

EBRD Principles in Respect of the Qualification, Ap-

pointment, Conduct, Supervision and Regulation of

Office Holders in Insolvency Cases, (European Bank

for Reconstruction and Development, June 2007), 10.

Available at http://www.ebrd.com/downloads/legal/

insolvency/ioh principles.pdf

4. National Party Senator for New South Wales,

John William’s, publicly expressed concerns, at the

conduct (including excessive remuneration charges)

of some insolvency practitioners. In particular,

Stuart Ariff was the catalyst for the 2010 Senate

Economics References Committee Inquiry into the

conduct of the insolvency profession in Australia

and the adequacy of efforts to monitor, regulate

and discipline misconduct. ASIC brought criminal

proceedings against Stuart Ariff that resulted in

the former liquidator being found guilty on 19

criminal charges and jailed for 6 years in 2011.

For more recent examples of media scrutiny, see

‘Liquidators Taken to Task over $500,000 in Legal

fees’Australian Financial Review, 29 October, 2014

‘Fee Challenge Rattles Experts’The West Australian,

22nd November, 2014 ‘Courtroom battler has his

day with insolvency judgement’The Age,11

December 2014.

Corporate Insolvency Practitioner Remuneration 57

Copyright © 2015 INSOL International and John Wiley & Sons, Ltd. Int. Insolv. Rev., Vol. 25: 56–71 (2016)

DOI: 10.1002/iir