Accountant in Bankruptcy eligibility for legal fees and charged to sequestrated estate: FOI release

Information requested

1.  On what basis does the AIB (acting as auditor) consider that relevant legal costs and expenses are a legitimate charge against the debtor’s sequestrated estate where:

• the trustee loses such a legal action
• interim charges are submitted before such legal action is concluded
• any award of expenses in favour of the debtor (and therefore against the AIB) is required to be met by the trustee

2. By what method are AIB staff, acting as auditors, required adopt to confirm that the required grounds for a legal action to be brought against a debtor that are set out in the Provider Agreement have been met before approving legal fees and expenses that have been incurred under delegated authority.

3. What are the said required grounds?

4. By what method and in what manner are AIB staff, acting as auditors, required to be advised when a Provider becomes aware that the required grounds are, or are no longer met?

5. Does the AIB accept that where a debtor’s legal action is brought against the AIB to challenge its policy with regard to all cases, the AIB’s legal expenses cannot  be found to be eligible to be charged against any specific sequestrated estate.

Response

AiB does not have a requirement to ‘audit’ accounts where they are trustee but must ‘prepare accounts’ and ‘make a determination’ of the fees and outlays. This is done in accordance with section 136(1) of the Bankruptcy (Scotland) Act 2016 (The Act). A debtor, or any creditor, who does not agree with the determined fees, or outlays, can appeal to a sheriff no later than 8 weeks after the end of an accounting period under section 136(4), subject to section 136(7).

Taking into consideration the information above the answers to your specific questions are as follows:

1. The basis for legal costs and expenses to be considered a legitimate charge is contained within Regulation 4(c) of the Bankruptcy Fees Order in force at the date an account is determined. The current Fees Order is the Bankruptcy Fees (Scotland) Regulations 2018.

All legal costs, incurred as part of the administration of the bankruptcy, would be considered a legitimate charge to the case, unless a sheriff orders otherwise on an interlocutor issued following a court action.

Legal expenses are paid from the public purse on a monthly basis during the course of an action and are determined at the end of an accounting period. They are only recoverable from an estate where funds are available.

Any award of expenses to be paid to a third party by AiB would be met from the public purse.

2. There is no requirement for AiB to confirm the grounds for action when determining legal outlays. A Provider has authority to instruct legal agents, within specific criteria. However, prior to instruction they must consider the potential cost and time of legal action against any offer made by, or on behalf o the debtor, which may remove the need to pursue the legal enforcement option.

3. A Provider can instruct the following:

• to prepare a disposition when selling property;
• to review a written offer and prepare a disposition from a third part - where another party is selling the property or a spouse is buying out the trustee's interest;
• to consider possible gratuitous alienation;
• conveyancing of a property;
• action for division and sale;
• action for right to sell (consent) - where the debtor or other party has been un co-operative or cannot be traced;
• using the single letter service, to trigger a response where previous attempts have been unsuccessful;
• any other legal action in connection with heritable property - where the Agency's consent has already been provided for that specific action;
• transfer of a premises licence.

For any other legal action the Provider must seek AiB approval before instructing a legal agent.

4. Please see response for question 2.

5. Legal expenses that do not relate to a specific case are paid for from the public purse.

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