Publication

Challenging the trustee’s remuneration: a new right for bankrupts?

Insolvency Intelligence, 2011, 24(1), 5-11

Joseph Curl

The regime contained in the Insolvency Act 1986 (1986 Act) and the Insolvency Rules 1986[1] (“Rules”) provides for the remuneration of a trustee in bankruptcy to be set by the creditors.[2]  One unheralded amendment contained in the Insolvency (Amendment) Rules 2010[3] (“2010 Amendments”) is the introduction of a right for the bankrupt to challenge his trustee’s remuneration under an amended r.6.142(1).[4]  Previously, only creditors could apply and such an application needed the support of 25 per cent of the creditors by value. The new version of r.6.142(1) expands and liberalises the position:

“Any secured creditor, or any unsecured creditor with either the concurrence of at least 10% in value of the creditors (including that creditor) or the permission of the court, or the bankrupt [emphasis added] may apply to the court…” 

If the court considers an application made under r.6.142(1) to be well founded, then it may (inter alia) reduce the trustee’s remuneration.[5]  The decision to give specific locus standi to bankrupts to apply against trustees concerning remuneration is entirely new and seems to have been introduced with very little comment.[6]  Prior to the 2010 Amendments, bankrupts had not had any specific right to be involved in the setting of their trustee’s remuneration since s.82(2) of the Bankruptcy Act 1914 (“1914 Act”) was repealed by the introduction of the 1986 Act.  That is not to say that the bankrupt was necessarily without a remedy  because he could apply under the general jurisdiction to control trustees.  However, the bankrupt could only apply under this jurisdiction where he could show a direct personal interest in the level of remuneration, which was a high hurdle.

So far, there is no indication as to how the bankrupt’s right to challenge his trustee’s remuneration will operate.  Is this an entirely new right, unfettered by any other requirement?  Or will the threshold requirement of a direct interest continue to be applied?  Trustees will be concerned about having to fend off pointless applications from bankrupts with no real interest.  This article will consider the principles that govern remuneration before turning to the development of the bankrupt’s right to be heard.  The structure of the case law based test will be considered, before considering the position in the light of the 2010 Amendments.

Orthodoxy under the statutory regime 

It is for the creditors to determine the trustee’s remuneration.  Rule 6.138 of the Rules provides that the trustee is entitled to remuneration,[7] that the remuneration should be set by the creditors’ committee if there is one[8] or by a resolution of the creditors if there is not.[9]  Remuneration may be fixed either as a percentage of realisations or based on time spent by the trustee and his staff.[10]  If the trustee considers that the remuneration set by the creditors is insufficient, then they may ask the creditors to increase it.[11]  Should this still be inadequate, the trustee may apply to court for its increase.[12]  As noted above, following the 2010 Amendments, any secured creditor or an unsecured creditor with the support of 10 per cent by value of the creditors or the bankrupt, may apply to court if they consider the remuneration to be excessive.[13]    

There is no shortage of authority as to the court’s approach to applications under the Rules by office holders or creditors.  Remuneration has been a rich source of controversy over the years and disquiet has sometimes been expressed about excessive costs incurred in insolvency processes.  Mirror Group Newspapers Plc v Maxwell (No.1)[14] is the most celebrated authority dealing with costs in insolvency.  Although it concerned a receivership rather than a bankruptcy, it is the leading case on remuneration in all species of insolvency.[15]  In MGN v Maxwell, a complex receivership realised £1.67 million but the process incurred costs of £1.63 million.  Of the total costs, the receivers’ remuneration amounted to £744,289. Mr Justice Ferris stated:

“Having in this way done my best to set out the figures objectively I cannot escape saying that I find them profoundly shocking. If the amounts claimed are allowed in full this receivership will have produced substantial rewards for the receivers and their lawyers and nothing at all for creditors of the estate. I find it shameful that a court receivership should produce this result in relation to an estate of more than £1.5m.”[16] 

Ferris J considered that remuneration should be fixed “so as to reward value, not to indemnify against cost”[17] and subjected to critical scrutiny.[18]  However, when matters came on for detailed assessment, Chief Taxing Master Hurst held:

“It is easy with the benefit of hindsight to point out that large amounts of the work produced no or no worthwhile results, but as Ferris J acknowledged in his judgment, the receivers cannot be criticised for that.

…I am persuaded that all the work undertaken by the receivers and the time spent by them was, in the circumstances, reasonable.”[19] 

Hourly rates were adjusted downwards to produce the result that the receivers’ remuneration was reduced from £744,289 to £659,259.50, which would probably be regarded by any party being assessed as an acceptable outcome.  So, in MGN v Maxwell, it transpired on assessment that the judge’s initial conclusion of excessive costs when compared with realisations was more apparent then real.  This appearance of disproportionate expense is commonplace.  In a personal bankruptcy (the subject of this article), this phenomenon is often at its starkest.  It is not unusual for the petition debt to be rapidly dwarfed by the remuneration, costs and expenses of the bankruptcy.  When applying MGN v Maxwell to a bankruptcy in Simion v Brown,[20] David Richards J acknowledged that costs will often appear disproportionate:

“…[I]t must be remembered that the trustee is under statutory duties … The trustee has no choice as to whether to perform these duties. It is likely that the smaller the estate, the larger will be the proportion expended in disbursements and remuneration.”[21]

Insolvency practitioners are familiar with the discontent often expressed by bankrupts about the costs of their bankruptcies.  This widespread disconnect between hope and reality on the part of bankrupts may lead to the pursuit of unrealistic applications if the right in the amended r.6.142(1) really is a new and unrestrained right.

Historical background 

Under the 1914 Act, a bankrupt had a safety-valve allowing him to be heard about the remuneration of his trustee.  Like the 1986 Act, the 1914 Act provided that remuneration would be fixed by resolution of the creditors. However, s.82(2) stated that:

“(1)      If…the bankrupt satisfies the Board of Trade[22] that the remuneration is unnecessarily large, the Board of Trade shall fix the amount of the remuneration.” 

No specific right of a bankrupt to be heard on costs was preserved in the 1986 Act.  It has not proved possible to establish why the why the bankrupt’s right was removed.  The Cork Report[23] has a number of points to make about costs and remuneration but does not mention non-creditor standing to make representations.  Indeed, the Report takes it as read that any aggrieved party will be a creditor.  Under the heading “Costs, Charges and Expenses”, the Report explains:

“We have received many submissions suggesting that the costs of administering an insolvent estate are excessive, and that the State and Professionals receive an unreasonable proportion of the total assets, leaving insufficient for the creditors.  While we can understand the grievance felt by a creditor who receives a statement showing (as sometimes happens) more than half of the trustee’s receipts being applied on the expenses of the administration, it must be borne in mind that the degree of skill and attention and the amount of work required by a particular insolvency is not necessarily related to the amount ultimately recovered.”[24] 

In the next section, headed “Remuneration”, the Report states that:

“We sympathise with the view put to us on behalf of unsecured creditors that there is inadequate general knowledge of the basis on which fees are calculated, and that this makes it extremely difficult to challenge the amount of the fees.”[25] 

The Report later notes a proposal received by the Committee suggesting that officeholders’ remuneration should be subject to taxation like solicitors’ costs.  The Report rejects this but question-beggingly concludes that “[w]here the costs are not agreed a creditor or other interested party could require the costs to be taxed”.[26]  There is no further guidance as to who falls into the category “other interested party”.  The Report also does not mention s.82(2) of the 1914 Act or say that the bankrupt’s specific entitlement to be heard on costs should be dispensed with.

There is little authority on s.82(2), although there is a late reported case decided under the 1914 Act that refers to it. In Upton v Taylor and Colley[27] Rimer J was clear about the way s.82(2) of the 1914 Act could operate:

“If such a resolution [of the creditors approving the trustee’s remuneration under s.82(1)] were to result in the voting of excessive remuneration then that would work an injustice on the bankrupt, as the person directly affected by the vote, although he would at least be entitled under s 82(2) to endeavour to persuade the DTI [to] fix the remuneration.  Thus a creditors’ resolution under s 82(1) is not necessarily the last word on the subject of remuneration.” 

Rimer J did not comment on the fact that the specific right on the part of the bankrupt to contest remuneration had not survived into the 1986 Act.[28]  This was despite the fact that when Upton v Taylor was heard in July 1998, it was unusual for a bankruptcy to be under the 1914 Act.  Had the case been decided under the 1986 Act, the creditors’ resolution would indeed have been the last word on the subject as far as the bankrupt was concerned under the statutory provisions.

A moderate concession was made to bankrupts by the Insolvency (Amendment) Regulations 2005 (SI 2005/512) (“2005 Amendments”).  The 2005 Amendments included the insertion of a new Part 5A into the Insolvency Regulations 1994 (SI 1994/2507).  A new regulation 36A required a trustee in bankruptcy to provide a statement of his time charges to the bankrupt on request.  No further right was afforded to the bankrupt by the 2005 Amendments.  This meant that the new Part 5A entitled the bankrupt to the trustee’s statement but gave him no ability to be heard on remuneration, regardless of the reasonableness or otherwise of the statement.  It was a right without a remedy until the introduction of the new r.6.142(1) by the 2010 Amendments.

Origins of the modern approach 

A test developed in the case law for whether or not a bankrupt could ask the court to intervene to control his trustee’s remuneration.  A principled distinction evolved between situations where the applicant had a direct personal commercial interest in the level of remuneration and where this interest was absent.  This proved to be a difficult hurdle to clear. The distinction began to develop in Re a Debtor (No.400 of 1940) (Ex p. the Debtor v Dodwell (the Trustee)),[29] where a bankrupt had a number of complaints about his trustee. Mr Justice Harman elegantly articulated his view of the position, considering that the case:

“…raises a question of some importance in bankruptcy law, namely, to what extent, if any, can the bankrupt call the trustee in his bankruptcy to account for his management and disposition of the estate.  The point, of course, can only arise where the bankrupt can show there is, or will, or might (but for the trustee’s action or inaction), be a surplus in the trustee’s hands after satisfying in full all the claims of the creditors.  Where, as in the vast majority of cases, the estate is insolvent, the bankrupt clearly has no interest in it, and it matters not to him how it is administered, but the bankrupt has a statutory right to any surplus…and is, therefore, clearly concerned to increase, if he can, its amount.  Bankruptcy has been a part of our law for over a century, and in essence it has preserved the same principle throughout, namely, that the bankrupt is relieved of his debts and freed from oppression of his creditors, but at a price which is that he is stripped of all his property, that property vesting in…the trustee…He is not a trustee of it for the bankrupt, but for the creditors, and the bankrupt till the bankruptcy process is worked out has no further interest in the assigned assets.  That is the price he pays for obtaining his discharge and for being freed from the fetters of his debts.  It is, in fact, the alternative to languishing indefinitely in the Fleet Prison.” [30] 

Harman J took a narrow approach to the bankrupt’s right to be heard. Despite having indicated in the passage quoted above that it was enough for a bankrupt merely to have shown that there “might”  be a surplus, later in the judgment Harman J was clear that:

“…[T]he bankrupt has not the ordinary right of a cestui que trust to intervene until the surplus has been ascertained to exist, and all the creditors and interest and costs have been paid…”[31] 

Where the bankrupt could show that there would be a surplus, the learned judge considered that locus standi on the part of the bankrupt could be established by ss.80 and 105 of the 1914 Act.[32]  Section 80 of the 1914 Act states:

“If the bankrupt or any of the creditors, or any other person, is aggrieved by any act or decision of the trustee, he may apply to the court, and the court may confirm, reverse, or modify the act or decision complained of, and make such order in the premises as it thinks just.” 

When s.80 of the 1914 Act was read together with the “all embracing language” in s.105, the jurisdiction was confirmed. Section 105(1) of the 1914 Act states:

“…[E]very court of bankruptcy having jurisdiction in bankruptcy under this Act, shall have full power to decide all questions of priorities, and all other questions whatsoever, whether of law or fact, which may arise in any case of bankruptcy coming within the cognizance of the court...” 

According to Harman J, there could be no jurisdiction for the bankrupt to apply in the absence of a surplus.  On the facts of Debtor v Dodwell, there was no possibility of a surplus and the bankrupt’s motion was dismissed.

Situations where there is ultimately a surplus will be relatively uncommon because a surplus prima facie points to balance sheet solvency.  It is obviously the exception rather than the rule.  Consequently, the door was opened ajar by Harman J’s decision in Debtor v Dodwell but it is unlikely that many bankrupts would be able to pass through it.  However, the strictness of this test would not withstand careful analysis about why a bankrupt with a right to a surplus had standing to apply.

From ascertained surplus to “some substantial interest”   

Debtor v Dodwell was cited with approval in Port v Auger.[33]  In determining whether or not a bankrupt’s son had locus standi to apply against his father’s trustee under s.303 of the 1986 Act,[34] Mr Justice Jeremiah Harman considered the approach to s.80 of the 1914 Act taken by Mr Justice Charles Harman 45 years earlier.[35]  In Port v Auger, Harman J had no hesitation in dismissing the application because:

“…[T]here was well known authority that persons aggrieved were a particular class of limited nature, notably the decision of Harman J in In re A Debtor, Ex parte The Debtor v Dodwell…to my mind, a person can only be ‘dissatisfied’[36] if he can show that he has some substantial interest which has been adversely affected by whatever is complained of.”[37] 

Mr Justice Jeremiah Harman in Port v Auger did not refer to a surplus being a necessary condition for a bankrupt to apply but rather to the more nebulous “some substantial interest”.  There is no real support in Port v Auger for the strict proposition that a surplus is required in order to establish standing.  To this extent, the jurisdiction had been gently widened, notwithstanding the complete failure of the applicant in Port v Auger. 

From “ some substantial interest”  to a direct financial interest 

The case of Upton v Taylor and Colley[38] dealt with a surplus situation.  Upton v Taylor and Colley opened the door to a more permissive approach. Despite Rimer J’s judgment being given in July 1998, the bankrupt’s insolvent history dated back well into the 1970s.  Mr Colley had entered into a deed of arrangement in 1976.  The supervisor of the arrangement was Mr Taylor.  A bankruptcy order was made in respect of Mr Colley in 1986 and Mr Upton was appointed trustee.  The administration of the deed of arrangement had not been completed at the date of the bankruptcy.  There was a surplus from the arrangement, which had not been paid across by the supervisor of the arrangement to Mr Colley.  On the making of the bankruptcy order, the surplus in Mr Taylor’s hands as supervisor vested in Mr Upton as Mr Colley’s trustee in bankruptcy.  By mistake, Mr Taylor paid the surplus to Mr Colley (the bankrupt) instead of Mr Upton (the trustee).  An order was made requiring Mr Colley and Mr Taylor to pay Mr Upton a sum sufficient to pay Mr Colley’s creditors in full.  Controversy arose about the level of Mr Upton’s remuneration.  Mr Justice Rimer noted that it was:

“…not difficult to envisage cases in which the operation of the s 82 machinery may perhaps be the recipe for possible injustice…The ordinary situation in which the s 82 machinery is operated is that of an insolvent estate, in which the creditors have a real commercial interest in seeing that the trustee’s remuneration is no more than fair.  In the example given, however, the creditors invited to vote on the trustee’s remuneration would have no commercial interest since they will anyway be paid in full.  They might well therefore be prepared to vote for whatever remuneration the trustee proposes to them.  If such a resolution were to result in the voting of excessive remuneration then that would work an injustice on the bankrupt, as the person directly affected by the vote.”[39]

Rimer J concluded that the court had jurisdiction to fix Mr Upton’s remuneration despite the fact that the machinery under s.82 of the 1914 Act had not broken down.  Although strictly speaking Upton v Taylor and Colley was a surplus situation, in fact the case was much more like an annulment because the trustee’s remuneration was one of the factors that determined how much the bankrupt had to pay across to his trustee (as in an annulment) rather than how much the bankrupt would receive from the trustee (as would be the case where there was a surplus).  It is plain from the reasoning of Rimer J that in a situation where the bankrupt makes payment to obtain annulment, the bankrupt will have no less of a direct personal commercial interest than in a situation where there is to be a surplus in the hands of the trustee after the administration of the estate.

Existence of direct financial interest on annulment 

Once it is acknowledged that in a surplus situation the bankrupt’s right derives from his direct personal commercial interest in the level of the costs and expenses of the bankruptcy, it is difficult to resist giving the bankrupt a right to be heard where an annulment is sought on the basis that the debts and expenses of the bankruptcy have been paid or secured.[40]  Although the interest in a surplus derives from how much the bankrupt will get and the interest on annulment derives from how much the bankrupt needs to pay, there is no difference in the direct nature of the interest.

Harman J’s conclusion in Debtor v Dodwell that a surplus was a necessary condition before a bankrupt could apply to the court about remuneration was dealt with directly in Engel v Peri.[41]   This judgment of Ferris J is the most thorough account of the bankrupt’s locus standi under the 1986 Act and expressly deals with the differences between the 1914 Act and the 1986 Act.  The bankrupt, Mr Peri, sought annulment and agreed to pay the bankruptcy debts but disputed the level of the trustee’s costs.  Mr Peri sought to challenge these sums under s.303(1) of the 1986 Act.  A conditional annulment order was made on the condition that sums were paid into court to abide the outcome of the application to challenge the remuneration and expenses.  The trustee appealed, arguing first that the bankrupt did not have standing to challenge the trustee’s remuneration at all, and secondly that s.303(1) did not permit the court to fix the remuneration.

The trustee relied on Debtor v Dodwell, where it was explicitly held that a bankrupt must be able to show that there will be a surplus.  Ferris J first noted that s.80 of the 1914 Act (under which Debtor v Dodwell was decided) “was in terms similar to those of s303 save that the word ‘aggrieved’ appeared instead of dissatisfied”.[42]  The judge then found that it was not a condition to show that there would be a surplus:

“I do not think [Debtor v Dodwell] can be regarded as laying down a universal requirement that a bankrupt must show that there will or may be a surplus before he has a standing to apply under s.303…the amount of the trustee’s remuneration and expenses may be a matter of considerable significance, because it affects the amount of money required to be paid…In my view the bankrupt has a clear interest in this, for he will want the annulment to be obtained as cheaply as possible.”[43] 

The distinction is not between cases of surplus and non-surplus.  Instead, Engel v Peri shows that the relevant distinction is between busybody interventions and interventions by bankrupts who have a direct commercial interest in the level of the trustee’s remuneration.  Indeed, it could be argued that the annulment situation is more cut-and-dried than the surplus situation. Whether or not “there is, or will, or might (but for the trustee’s action or inaction), be a surplus in the trustee’s hands” (the test laid down by Mr Justice Charles Harman in Debtor v Dodwell ) sounds like fertile ground for dispute.  In an annulment where the bankrupt (or his benefactor) is paying the costs of the bankruptcy, the bankrupt (or his benefactor) will always have this direct commercial interest.

The trustee’s second argument in Engel v Peri that the court did not have jurisdiction under s.303(1) of the 1986 Act to go behind the comprehensive code contained in the Insolvency Rules 1986 was shortly disposed of by Ferris J:

“I think that it is right to say that the rules do proceed on the basis that they provide a comprehensive code, but it seems to me that it is a defective one…It seems to assume that, in a time spent case, the remuneration will, in the absence of a successful challenge under r.6142, be whatever the trustee calculates to be due to him…It is even less satisfactory in a case of the present kind, where the trustee’s remuneration may be a significant element in the determination of what sum the bankrupt has to procure to be paid in order to have his bankruptcy annulled.  There is nothing in r 6.142 which enables the bankrupt, as distinct from a creditor, to apply for the remuneration to be reduced.”[44] 

Ferris J pointed to the Court of Appeal’s decision in Re Colgate (A Bankrupt), (Ex p. Trustee of Property of the Bankrupt),[45] decided under the 1914 Act, where May LJ had held that s.105 of the 1914 Act[46] conferred:

“…wide powers of doing justice in a particular case, and in the particular circumstances of the instant appeal one must invoke those powers to do justice because the machinery laid down by s.82 of the Act of 1914 has in the event, and after numerous attempts to make it work, broken down.” [47] 

Ferris J then observed that the 1986 Act did not contain a provision like s.82(2) of the 1914 Act allowing the bankrupt to apply to the DTI to fix remuneration.[48]  This meant that:

“…[A]lthough the amount of the trustee’s remuneration is a matter of immediate concern to him, the statutory regime gives him no express right to make representations concerning it.”[49] 

Mr Justice Ferris concluded in Engel v Peri that the same jurisdiction as was applied both in Colgate and in Upton v Taylor and Colley was available.

In an outspoken commentary on the conduct of the appellant trustee in Engel v Peri, Ferris J remarked in the penultimate paragraph of his judgment that:

“I find it difficult to understand the trustee’s concern in respect of these matters, unless it be to prevent there being any scrutiny by the court of the amount of his remuneration and the propriety of his expenditure on legal costs.  If this were to be his goal I would find it wholly inappropriate, unworthy and unacceptable on the part of the office holder.  But if he is content to have his remuneration fixed by the court within the parameters of the creditors’ resolution under r 6.138, why is he so concerned by the s 303 application?  And why did he argue before me that the s 303 application was misconceived even if the bankruptcy had remained subsisting because, he contended, rr 6.138 – 6.142 constitute an exhaustive code in respect of the remuneration of a trustee in bankruptcy?  No satisfactory answers to these questions were provided in the course of the hearing.”[50] 

This can be read as not only a pointed criticism of the particular trustee in Engel v Peri but as a shot across the bows of the insolvency industry as a whole.  By the time Engel v Peri was decided, Mr Justice Ferris already had a formidable track record for criticising the remuneration of insolvency practitioners, having been the judge in the matter of MGN v Maxwell.[51] 

Locus standi of third parties to apply 

For obvious reasons, a bankruptcy will usually be of considerable concern to a bankrupt’s spouse.  However, despite the often devastating effect that bankruptcy may have, the spouse does not enjoy any greater right than any other third party to get involved in the conduct of the bankruptcy.  The focus of the spouse’s concern is often a domestic property, which in many bankruptcies is the principal (and frequently the only) asset in the estate.  If the spouse has funds available, then the spouse can choose whether to try to purchase the trustee’s share of the domestic property or pay the debts and costs of the bankruptcy in order to obtain an annulment.  The most appropriate course will depend on the circumstances. In many parts of the country, a bankruptcy involving a mortgaged domestic property will quickly incur costs that exceed the value of the trustee’s share of the property.  Where this is the case, the most cost-effective option will be to purchase the trustee’s share of the property rather than to seek annulment.  Unless the spouse has some collateral reason to want the bankruptcy annulled, then purchasing the trustee’s share will be more attractive. Indeed, it is sometimes more attractive for the spouse (sometimes by now an ex- or estranged spouse) to obtain complete control of the domestic property rather than for it to re-vest in the (ex-) bankrupt on annulment.  On the other hand, where the bankruptcy is straightforward and the property is valuable, the value of the trustee’s share will be more than the sum needed to obtain annulment. In this latter category of cases, annulment will be the best option.

Where the spouse purchases the trustee’s share of the property, it does not matter what the bankruptcy costs are.  The bankruptcy subsists and will play itself out.  However, when the spouse is the paying party in an annulment application, what right do they have to challenge the bankruptcy costs?  In Woodbridge v Smith,[52] the trustee argued that the answer to this question was “none at all”.  According to the husband’s trustee, his remuneration was simply not the applicant wife’s concern, despite her being the paying party on the annulment application.  The application to challenge the costs of the bankruptcy had been brought under s.303 of the 1986 Act.  However, the trustee argued that it was impossible to discern what “act or decision”  of the trustee was complained of or what “substantial interest” (for the purposes of Port v Auger[53]) the spouse had.  Mr Registrar Baister considered that the preceding authorities on the meaning of s.303 (Port v Auger and Re Cook[54]):

“…must open up the possibility of the provision’s being available to the spouse of a bankrupt, whether discharged or not, who is contemplating or seeking to make an annulment application, something she is plainly entitled to do.”[55] 

The registrar set out how Mrs Woodbridge could satisfy the “substantial interest”  test in Port v Auger to apply under s.303 of the 1986 Act:

“In circumstances such as these it is artificial to draw too fine a distinction between husband and wife.  The law stops short of considering man and wife as one: they do not become ‘one flesh’, as the words of the marriage service put it; husband and wife retain separate legal personalities in the modern world.  However, Mr and Mrs Woodbridge live together and occupy a property which has been described in these proceedings as their matrimonial home. It is plain that an obligation of one of them to pay £7,000-odd [the costs of the bankruptcy] is likely to have some effect on the other, whether or not paying such a sum entails a sale of their house…Mr Woodbridge’s apparent obligation to pay the trustee’s fees in the sum being claimed and the consequential danger to the property which is Mrs Woodbridge’s home are, in my view, factors which give her a substantial interest in the conduct of the bankruptcy and which adversely affect her enjoyment of that property now or will do so in the future.”[56] 

Woodbridge v Smith shows that the basis on which bankrupts have been allowed to challenge the trustee’s remuneration is not one that is restricted to bankrupts.  Instead, it appears from Woodbridge v Smith that standing may extend to any party with the sort of direct personal commercial interest in the level of the trustee’s remuneration.  Any residual doubt that this was the basis of the spouse’s right to be heard in Woodbridge v Smith was dispelled in Miller (As Trustee in Bankruptcy of Bayliss) v Bayliss,[57] where the bankrupt’s wife tried to apply in her husband’s bankruptcy raising various complaints that the trustee had behaved in an improper or unfair way. Alison Foster QC (sitting as a Deputy High Court Judge) held that Woodbridge v Smith was not authority for the proposition that a spouse has a special right to be heard by virtue of being the bankrupt’s spouse.[58]  This meant that if the wife in Woodbridge v Smith did not derive her locus standi simply from being the bankrupt’s wife, her standing must have derived from her direct commercial interest in the level of the trustee’s remuneration as the paying party on the annulment.  Consequently, it is submitted that where parties other than the bankrupt or the bankrupt’s spouse can bring themselves within this category (for example, by being the paying party on an annulment application), there will be no principled reason to prevent such a third party having locus standi to be heard on the subject of the trustee’s remuneration.

Conclusion 

Rule 6.142(1) as amended by the 2010 Amendments introduces a specific locus standi to the bankrupt to be involved in the setting of his trustee’s remuneration for the first time since the repeal of the 1914 Act.  It remains to be seen whether r.6.142(1) is a genuinely new right unfettered by any threshold requirement or whether a bankrupt will still have to satisfy the exacting test developed through the case law.  That test required the bankrupt to show as a threshold requirement “some substantial interest which has been adversely affected”  (Port v Auger[59]).  For the purposes of challenging the trustee’s remuneration in a bankruptcy, a “substantial interest” meant a direct personal commercial interest in the level of the remuneration.  A bankrupt may come within this class either because there will be a surplus for the bankrupt once the creditors and costs have been paid (Debtor v Dodwell[60]) or because all the debts and costs are going to be paid in full and the bankruptcy annulled (Engel v Peri[61]).

On the face of the amended r.6.142(1), there is no such threshold requirement.  However, it can probably be accepted without extensive argument that it is not in the interests of an effective insolvency regime to allow the bankrupt a wide locus standi to apply to the court to complain about or comment on the trustee’s conduct of the bankruptcy estate.  In most bankruptcies, the bankrupt’s personal views are not relevant to the goals of the regime and the bankrupt is very likely to be partial.  Indeed, one factor that routinely inflates the costs of bankruptcies is the time spent by trustees and their staff fending off criticisms and interventions by bankrupts.[62]  There is very often a significant divergence between what the bankrupt thinks would be a reasonable level of cost and the level of costs that are incurred.[63]  It is submitted that if the right to apply is unrestrained, then the costs of bankruptcy may well be needlessly increased by misguided or vexatious applications by bankrupts.

It is further submitted that the case law based test will inevitably remain relevant at least where the party seeking to apply is not the bankrupt but some other interested party.  This situation will usually arise in the context of annulment and the applicant will usually (although not always) be the bankrupt’s spouse.  Woodbridge v Smith[64] shows that a spouse who can satisfy the test of a direct personal interest in the level of bankruptcy expenses can apply and Miller v Bayliss[65] shows that this right does not derive from the spouse’s status as spouse but rather from the direct interest, introducing the possibility that non-spouse third parties may apply if they can satisfy the test.  Consequently, the line of cases analysed in this article will retain some significance even if r.6.142(1) as amended by the 2010 Amendments is intended to give bankrupts a right to challenge the trustee’s remuneration regardless of any threshold requirement.