The Accountant in Bankruptcy (AiB) procedures relating to interim legal fees: FOI release

Information requested

What policy and procedures does the AiB require to be followed when imposing interim legal expenses incurred in a Sheriff Court action (brought by the AiB as Applicant/Pursuer) where the AiB’s expressly craves that upon completion of the proceedings (whether for or against the AiB) the court should only then grant authority to the AiB to treat the said expenses and outlays as an authorised expense of the sequestrated estate.

1. On what basis does the AiB justify charging, auditing and determining any such interim, conditional expenses prior to the Sheriff Court issuing its decision and authority.
2. On what basis does the AiB (as trustee) not recognise that any such appropriation of trust funds could constitute a breach of trust and conflict of interest?
3. when conducting any audit of such fees, in what terms are the AiB’s audit staff informed of the status of the litigation, and the pending, contingent nature of the legal expense recovery?

Response

The Accountant in Bankruptcy (The Accountant) as trustee in a sequestrated estate must have regard to The Bankruptcy (Scotland) Act 2016 (The Act) and associated regulations.

The Act sets out at section 50(1)(a) – Functions of a trustee:

• to recover, manage and realise the estate of the debtor, whether situation in Scotland or elsewhere

To carry out this function the trustee may incur costs which can be recovered from the estate as set out in section 129(1) – Priority in distribution:

• The funds of the debtor’s estate must be distributed by the trustee in the sequestration to meet the following debts in the order in which they are mentioned –

1. The outlays and remuneration of an interim trustee in the sequestration of the debtor’s estate
2. The outlays and remuneration of the trustee in the sequestration of the debtor's estate

The basis for legal costs and expenses to be considered a legitimate charge for The Accountant as trustee 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 which states:

• The outlays payable to AiB in respect of the exercise by, or on behalf of, that office of its functions as interim trustee or trustee in a sequestration are those outlays actually, necessarily and reasonably incurred in respect of the exercise of any of those functions and include, but are not limited to, outlays so incurred in respect of—

1. legal services and related expenses;

Therefore, 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.

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.

There is no requirement for AiB staff to confirm the grounds for action when determining legal outlays. A case handler working on behalf of AiB 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 of the debtor, which may remove the need to pursue the legal enforcement option. They would continue to monitor costs during an action to ensure any continuation is in the best interests of the creditors.

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