Challenge To Trustee In Bankruptcy Fees is a post coming from the Case of Brook v Reed [2011] EWCA Civ 331.
The Facts: Challenge To Trustee In Bankruptcy Fees
The bankrupt, Mrs Brooks, ran a retail business and was made bankrupt in August 2007 on a petition by HMRC. Mr Reed was appointed as her trustee in Bankruptcy. The trustee obtained a resolution from creditors that his remuneration was to be fixed on a time spent basis. Mrs Brook’s debts were around £25,000. There was however likely to be a surplus arising from her bankruptcy estate.
Her business was sold to her husband for £10,000 and her share in the matrimonial home was valued at £165,000. She made an application to annul.
Delays arose because the bankrupt did not provide information in relation to the payment of her creditors despite reminders from trustee in bankruptcy’s solicitors and she disputed the trustee in bankrupt’s remuneration, costs and expenses in the order of about £19,900.
A District Judge directed that the trustee in bankruptcy needed to file “detailed bills of costs and expenses”. However, the trustee in bankruptcy confined the information to Statement of Insolvency Practice Number 9 forms. The bankrupt’s points of dispute said that the claim for costs should be “dismissed”. At a later hearing, the District Judge said that the bankrupt had not raised substantial points of dispute. As a result, the trustee in bankrupt’s fees were fixed: trustee’s costs and remuneration (£20,354), additional disbursements (£2,890), solicitors’ costs (£23,086).
Mrs Brook appealed and it was heard by HHJ Behrens sitting with two assessors (the regional costs judge and a barrister/deputy district judge specialising in costs cases). It was held that the District Judge should have assessed the costs in circumstances where they appeared high and the bankrupt was in person. The court therefore decided to carry out its own assessment and reduced the trustee’s costs and remuneration to £9,929 and his solicitors’ costs to £10,038.50, plus disbursements.
The bankrupt was given permission to appeal to the Court of Appeal on the ground that the judge had not had regard to the Practice Statement: The Fixing and Approval of the Remuneration of Appointees 2004.
Brook v Reed On Challenge To Trustee In Bankruptcy Fees
David Richards J gave the lead judgment in the Court of Appeal and set out at length the history to the Practice Statement, including the well known observations of Ferris J in Mirror Group Newspapers v Maxwell [1998] BCC 324 that the value of the services rendered does not necessarily equate to time spent. He said:
“I consider that the stage has been reached where a court hearing an application to fix or to challenge the remuneration of an office-holder should proceed on the basis that the Practice Statement is to be applied, except in so far as in the circumstances of the particular case the party objecting to its application shows that it would be wrong in principle to do so. In my judgment, the statement of guiding principles in the Practice Statement is a correct statement of the principles generally applicable to issues relating to the remuneration of office-holders, although the particular circumstances of a case might call for the formulation of a further principle.”
“Third, the test of whether office-holders have acted properly in undertaking particular tasks at a particular cost in expenses or time spent must be whether a reasonably prudent man, faced with the same circumstances in relation to his own affairs, would lay out or hazard his own money in doing what the office-holders have done. It is not sufficient, in my view, for office-holders to say that what they have done is within the scope of the duties or powers conferred upon them. They are expected to deploy commercial judgment, not to act regardless of expense. This is not to say that a transaction carried out at a high cost in relation to the benefit received, or even an expensive failure, will automatically result in the disallowance of expenses or remuneration. But it is to be expected that transactions having these characteristics will be subject to close scrutiny.”
He said that the omission to apply the Practice Statement did not provide a ground on which the appeal should be allowed. The Judge had thought about whether the remuneration claimed was proportionate to “the circumstances of the bankruptcy” and had regarded time spent as relevant but not decisive. Mrs Brooks’ failure to deal with the requirements of her annulment application had led to an increase in costs.
Observation: Challenge To Trustee In Bankruptcy Fees
The Practice Statement will be applied in probably most (if not all) but the most exceptional cases. Value is not to be measured by only time spent and whether remuneration is “disproportionately high in relation to the circumstances of the bankruptcy”. David Richards J said:
“The word “circumstances” is important. The duties of an office-holder are not confined to the realisation and distribution of assets. There are statutory duties which must be performed, such as communicating with creditors and reporting on the events leading to the insolvency, with particular regard to the conduct of the bankrupt or directors of an insolvent company. The office-holder may need to investigate the existence of possible assets or the merits of possible claims, which may in the event not lead to assets available for distribution, although in all cases the office-holder will be expected to exercise commercial judgment in pursuing such matters. Dealing with particular claims of creditors may be time-consuming and there may be other activities, such as the disclaimer of onerous leases and other property, which do not increase the assets for distribution.”
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