• Engaging solicitors and legal counsel and negotiating rates

    Legal and policy obligations imposed on the Deputy Commissioner of Taxation (DCT) require that all spending proposals must make efficient, effective, economical and ethical use of Commonwealth resources. Therefore, the DCT will normally seek to have input into, and ultimately approve, the solicitor and legal counsel engaged by the insolvency practitioner.

    The DCT will also normally seek to negotiate the best possible rates with the insolvency practitioner and require the insolvency practitioner to negotiate the best possible rates with their solicitor and legal counsel. If rates which are satisfactory to the DCT cannot be negotiated, the indemnity may be rejected.

    Payment of the insolvency practitioner's costs and expenses will be made pursuant to the terms of the Deed of Indemnity. This means there is a low risk of the insolvency practitioner not being paid for the tasks performed pursuant to the Deed of Indemnity. This is in contrast to unfunded administrations where the insolvency practitioner is often at risk of not being paid, or at least not being paid the full amount of their remuneration.

    There will usually be a range of suitably experienced and skilled solicitors and legal counsel for an insolvency practitioner to choose from. The DCT will require the practitioner to make a choice based on value for money, taking into account the nature and complexity of the action, the tasks required to be undertaken and the level of knowledge, skills and experience that are required to achieve the desired outcome in each case.

    The DCT may suggest solicitors and legal counsel or provide a short list for the insolvency practitioner to choose from. Ultimately, as the indemnifying creditor, the DCT will need to be satisfied of the solicitors and legal counsel to be engaged and the rates they propose to charge, or else the indemnity may not be approved. However, the DCT is always willing to work with insolvency practitioners to resolve any difference of opinion.

    The same applies to other experts of any nature that may need to be engaged by an insolvency practitioner during the course of litigation and pursuant to the terms of a Deed of Indemnity.

    Legal Services Directions

    The DCT may require insolvency practitioners, through their solicitors, to engage a legal counsel who is prepared to charge daily and hourly rates at their Commonwealth rate as set by the Attorney-General's Department (AGD), Office of Legal Services Coordination (OLSC). This is pursuant to the Legal Services Directions 2005External Link, in particular Appendix D, which is issued by the AGD.

    The Directions apply to an Australian Government FMAA agency for the provision of legal services and the engagement of legal counsel and do not apply to an insolvency practitioner who seeks the provision of legal services and engages legal counsel pursuant to an indemnity provided by the DCT, as it is the insolvency practitioner and not the DCT who is seeking the legal services and engaging legal counsel.

    However, as the provision of legal services is being paid for by the Commonwealth, pursuant to the terms of a Deed of Indemnity, the DCT still needs to ensure the services are efficient, effective and economical and that the various laws and policies of the Commonwealth are properly complied with.

    As a condition of an indemnity being approved by the DCT, it will generally be a requirement for insolvency practitioners to comply with at least certain parts of the Directions, such as:

    • conducting litigation as a Model Litigant (see Appendix B of the Directions)
    • not commencing court proceedings unless written legal advice has been obtained indicating that there are reasonable grounds for starting the proceedings
    • engaging legal counsel in accordance with Appendix D of the Directions.

    The approval of an indemnity and entering into of a Deed of Indemnity does not remove any legal obligations that may be imposed on insolvency practitioners to seek creditor, committee of inspection, or court approval of their remuneration, or any other amounts where approval is required to be obtained before being paid.

    Where such approval is required, the DCT will only pay amounts that have been properly approved and only up to the limits specified in the Deed of Indemnity. For example, if creditors, the committee of inspection, or the court approves a lesser amount than has been provided for in the Deed of Indemnity, the DCT will only pay the lesser approved amount.

    Last modified: 31 Mar 2016QC 43960