In recent years, there has been a good deal of concern as the result of a fairly general perception that costs in insolvency cases have reached an unacceptably high level.’

So said Mr Justice Ferris in Mirror Group plc v Maxwell and others (No 2) [1998] 1 BCLC 638.

The concern remains, for while the overwhelming majority of insolvency practitioners do decent work at reasonable costs, there remains a minority of practitioners who continue to overcharge.

In the light of the changes made by the Insolvency (Amendment) Rules 2010, it is appropriate to begin with a brief overview of the main provisions of the Insolvency Act 1986 and the Insolvency Rules 1986 (as amended) which deal with office-holders’ ­remuneration.

The remuneration of a supervisor of an individual voluntary arrangement is still governed by the terms of the proposal but may be challenged under section 263 of the act.

Rules 6.138-6.142C now govern the remuneration of a trustee in bankruptcy.

Remuneration may now be charged as a percentage of the value of assets realised or distributed, or both in combination, as well as by reference to ‘the time properly given by the insolvency practitioner (as trustee) and his staff’ in dealing with the bankruptcy (italics added here, as a time-cost resolution is not carte blanche to charge for time spent, only time properly spent), or ‘as a set amount’ (rule 6.138).

Where remuneration is not fixed on those bases a scale rate applies (rule 6.138A).

Remuneration falls to be determined by the creditors’ committee (rule 6.138(2) & (3)C), which may determine it on one or more bases.

Different bases may be fixed for different work done and different percentages may apply.

Rules 6.140A and 6.141A allow the trustee recourse to a meeting of creditors and to the court, while rule 6.142 allows the creditors and the bankrupt to apply where it is contended that the remuneration or other ‘expenses incurred by the trustee’ are excessive or inappropriate.

Relevant matters to be taken into account are set out in rule 6.138(4).

Apart from giving greater flexibility as to the bases on which remuneration may be charged, the amended rules now contemplate the possibility of the courts dealing with expenses, including legal fees, as well as remuneration proper.

Rule 6.56 deals with the remuneration of an interim receiver; rule 6.167 that of a special manager.

The remuneration of the supervisor of a company voluntary arrangement is dealt with much like that of the supervisor of an individual arrangement (see section 7 of the act as to possible challenge).

Rules 2.106-2.109C deal with the remuneration of an administrator.

They operate in much the same way as those governing the remuneration of a trustee. (Note rule 2.109(1A) as to ‘expenses incurred by the administrator’ and rule 2.109C as to apportionment).

Rules 4.127-4.131C govern the remuneration of a liquidator and again operate very much like the trustee provisions. (Note as to expenses rule 4.131(1A)).

The remuneration of a ­provisional liquidator is governed by rule 4.30.

None of those changes, however, affects the fundamental propositions enunciated by Mr Justice Ferris, and subsequently enshrined in the Practice Statement: The Fixing and Approval of the Remuneration of Appointees (2004).

Mr Justice David Richards, sitting in the Court of Appeal, remarked in Brook v Reed [2011] EWCA Civ 331 (after setting out the relevant rules) that Mr Justice Ferris’ judgment ‘has since [1986] been treated by other judges as applicable to…office-holders’ in general.

He then went on to deal with the history that led to the Practice Statement and the hitherto unexplored issue of its force and application.

After referring to a number of authorities where the courts had had regard to it, he said: ‘I conclude 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…’

The judge then turned to the facts.

Mrs Brook, who ran a small flower shop, was made bankrupt for non-payment of VAT.

Her creditors’ claims amounted to about £40,000. She applied to annul the bankruptcy order, and, as so often, it was in that context that the remuneration dispute arose.

Unfortunately, Mrs Brook did not put in detailed points of dispute, so District Judge Barraclough allowed the trustee’s remuneration and expenses.

There was an appeal to Judge Behrens, sitting as a Deputy High Court judge.

He sat with two assessors, the regional costs judge for Leeds and a Deputy District Judge who specialised in costs cases.

The judge was critical of the level of remuneration, adopting the district judge’s criticism that they ‘seemed disproportionately high’.

He assessed the trustee’s remuneration and disbursements in the total of £23,855.24.

The costs of the trustee’s solicitor were reduced from £23,086 to £10,038.50.

Neither the district judge nor the judge on the appeal had been referred to the Practice Statement.

However, while Mr Justice David Richards found that ‘the principles in the Practice Statement should have been expressly applied’ he went on to say, ‘I do not consider that this omission provides a ground on which the appeal should be allowed’ since ‘Judge Behrens applied what were fundamentally the relevant criteria to the facts of the case.’

Accordingly the appeal was dismissed.

Hunt v Yearwood-Grazette [2009] EWHC 212 (Ch), [2009] BPIR 810 was an extreme case.

Again the bankrupt had cleared the bankruptcy debts and wanted to settle the trustee’s fees with a view to annulment.

In April 2006, the trustee said he was owed £10,000 in remuneration.

This was disputed by the bankrupt, so the trustee applied for an order to fix his fees and remuneration and for an order for possession and for sale of the bankrupt’s property.

By the time of the application, the trustee was claiming £19,611.75, including £6,345.88 in legal fees.

District Judge Sterlini disallowed all but £3,396.43 on the basis of inadequate information, and twisted the knife by ordering the trustee to pay over £4,800 as the assessed costs of the application before him.

Mrs Justice Proudman cited with approval passages from the decision of District Judge Sterlini: ‘Simply asserting that X amount of time has been expended by the trustee in undertaking work is not of itself sufficient.

'There has to be more than that. The question then is has the trustee provided more than that? In my judgement, the answer is no.

'The trustee has not provided sufficient evidence to satisfy the requirements set out in the Practice Direction.

'The evidence which was provided is in the form of a schedule which has, in some cases, extremely bland descriptions with no explanations as to (and I consider this to be very significant) the benefit to the bankruptcy of any specific step.

'I am entitled to infer that there is some benefit to the bankruptcy from the work that was done by the trustee, but I am not satisfied that the evidence here even gets the trustee off the ground.

‘It is more than surprising, it is shocking, that having been given an opportunity since October of last year to file just such evidence, which clearly sets out in a narrative format with an explanation, as to why each step or each particular piece of work was required in more general terms, but, certainly in the form of narrative that somebody could understand, that has not been done.

'I take the view, therefore, that the trustee has failed to provide an adequate explanation […]’

Expensively for the trustee, the appeal was dismissed.

Stephen Baister is the chief bankruptcy registrar of the High Court