AFSA has released a guidance video aimed to provide further direction to insolvency practitioners and AFSA stakeholders on the topic of insolvency practitioner remuneration.

This is part 1 of a 3 part series being released by AFSA with the stated aim of ensuring compliance and best practice amongst all insolvency practitioners.

The video examines four key principles that underpin an insolvency practitioner’s entitlement to remuneration:

1. The remuneration must be properly fixed;
2. It must be reasonable and necessary;
3. It must be incurred legally and;
4. It must be supported by documentation and proper records.

Properly fixing remuneration requires that an insolvency practitioner  approval from creditors as to the fees charged by each person involved in the work based upon the complexity of the task and the expertise required. This is examined in depth in Inspector General Practice Direction 6 .

The second principle requires that there is a direct nexus between the work undertaken and the fees charged and that those fees be charged at the appropriate level in light of the complexity of the task performed. The work undertaken must also be directly attributable to the duties ordinarily expected of a trustee pursuant to Section 19(1)(j) and 19(1)(k) of the Bankruptcy Act 1966 (Cth).

Principle three concerns scenarios where remuneration and costs cannot be legally charged:

• When litigating for self interest;
• When performing work outside the ordinary scope of an insolvency practitioners powers;
• When performing work where no further action is required such as where a bankrupt has discharged all payable debts;
• An insolvency practitioner cannot charge when assisting AFSA with regulatory enquires and;
• For work undertaken prior to taking an appointment unless approved by creditors through a special resolution.

The fourth principle is that there must be evidence on file that the work billed for has been performed. If a insolvency practitioner is unable to provide such evidence and a review is conducted by AFSA, then the practitioner may be forced to provide a refund.

For further information on the views of Australian courts in regards to insolvency practitioner remuneration please see here.