The fees charged by insolvency practitioners can sometimes be a matter of contention, with different interested parties having differing expectations. Further, there is no comprehensive set of guidelines or regulations in Singapore setting out the basis on which insolvency practitioners should determine their fees, as well as the level of information on fees that should be provided to stakeholders. This sometimes leads to unhappiness as to the quantum and necessity of fees after the event.
In a recent Singapore High Court decision, Justice Steven Chong has proposed a new system in which insolvency practitioners would submit a schedule of projected fees to the relevant approving body for approval before any substantive work is done. In doing so, Justice Chong considered latest developments in a number of common law jurisdictions and noted broad similarities in their approach towards remuneration.
The court has referred the proposed system of fee schedules to the Rules Committee for further study and possible implementation by way of legislative amendments. Pending formal institution of such a system, the court encouraged insolvency practitioners to adopt the practice of submitting costs schedules for approval. This Update looks at the issues in this decision and the key features of the proposed system.
The key features of the proposed system are as follows:
- Insolvency practitioners should, if their fees are expected to exceed $200,000, submit a costs schedule to the relevant approving body within a month of appointment.
- The costs schedule is a summary of estimated costs, and should include all information necessary to assess if it is fair, reasonable and proportionate, including:
- Details of the work;
- The anticipated time spent;
- The size of the team and their respective seniorities and responsibilities;
- The proposed basis of remuneration and why it is suitable;
- The hourly rates and a fee estimate for the relevant period;
- The anticipated disbursements and costs; and
- Whether other professionals have also been engaged and the division of responsibility.
- After approval of the costs schedule, the insolvency practitioner is entitled to periodic payments on account.
- However, there will be a final review at the end of the engagement. If the total sums claimed fall under the fee cap, approval will follow as a matter of course. If there are minor deviations within 15% of the fee cap, there will generally not be a need for an intrusive review. Otherwise, the court will examine whether the insolvency practitioner will have to refund the difference.
- The insolvency practitioner may apply to amend the costs schedule along the way should it expect major deviations from the initial projections.
One of the points to note is the periodic nature of the proposed payment system. By allowing the insolvency practitioner to claim periodic payments, he is given a degree of certainty in terms of continued cash flow. The efficiency of the services provided will thus not be hindered by minor disputes over billing in the course of the engagement.
The proposed system also provides more certainty in the sense that insolvency practitioners will have less cause for concern that the scope or urgency of work undertaken will be called into question at the end of the engagement. Having approved of the likely scope of work and the insolvency practitioners’ estimated fees beforehand, the client will also be less inclined to reject the final bill offhand, which could happen if large sums are incurred.
Appropriate remuneration for insolvency practitioners
The court reiterated that the remuneration for insolvency practitioners must be fair, reasonable and proportionate. The factors for determining the fulfilment of this requirement include the time expended, the complexity of the receivership, the effectiveness of the performance, and the value and nature of the subject matter of the receivership.
Insolvency practitioners should also provide full particulars in their bills to justify the quantum charged. This should include the profile and qualifications of the team, the areas of work performed and the time spent, and the general policy regarding the capture of value, such as the steps taken to avoid duplication or over-servicing.
Justice Steven Chong has indicated that he will recommend the proposed system to the Chief Justice to refer to the Rules Committee for further study. Therefore, the implementation of the system – should it occur – will not be within the immediate future, and the eventual system may well differ from the one proposed in this judgment.
Nonetheless, insolvency practitioners may take note of the guidance provided as to what constitutes an acceptable fee schedule, including the reasonableness of the billed items, and the information that should be provided in the bills.