Lawyers and liquidators have been riding the insolvency gravy train for too long. The public is starting to notice.
A Hong Kong judge's remark this month on the Peregrine insolvency – that the lawyers' relationship with the liquidator seemed “too cosy” – was telling.
When a liquidator gets appointed by a court, he is effectively given a blank cheque. His only brief is to recover as much money from the assets as possible. He decides what work is necessary and how long he should spend on it and therefore how big his and his partners' bill is going to be. He also decides which lawyers are going to advise him and what they should do to recover assets.
When payday comes, he adds the lawyers' bill to his own and marks it as “disbursements”. So there might be a few hours added on here and there. What does he care? He is not paying for his lawyers' services, it all comes out of the assets recovered.
An accountant's bill cannot be taxed. So, laughably, in compulsory liquidations in this country, civil servants from the Department of Trade and Industry are supposed to be responsible for ensuring the fees are fair.
If the liquidator decides to set up a creditors' committee, and this is not compulsory, then the committee is supposed to take responsibility for monitoring fees. But a randomly assembled group of investors has no greater chance of knowing what fees are fair and successfully negotiating them down than a minor mandarin in Whitehall.
When it comes to the lawyers' bill, theoretically, the creditors or the liquidator can ask for it to be taxed. But the liquidator is not paying, and does not want to upset his helpful lawyers by questioning their bill. The creditors all have to agree to taxation.
Even if they are organised enough to elect representatives to sit on a committee, its members would have to convince the chairman, the liquidator himself.
It is to be hoped Mr Justice Ferris' long-awaited report into liquidators fees will call for a system of taxation for liquidators themselves. Or at least some kind of cap on their fees and that of their lawyers.
A couple of months ago, Mark Andrews, Wilde Sapte's senior partner, stood up at the Society for Practitioners of Insolvency conference in Paris and told assembled liquidators about the mysteries of fees taxation. When you are in the hands of a taxing master, he warned, you never know what is going to happen.
The delegates, apparently, were frightened out of their wits. Could their gravy train be about to hit the buffers? For the good of the investing public, and the reputation of the insolvency profession, let us hope so.