In a recent case following the administration of a chain of jewellery stores, the Outer House of the Court of Session have upheld the decision of the Reporter and reduced the fee of the administrators. It was established that the administrators charged their work on the basis of time recording which is very common in almost all accountancy practices and law firms. However, in this case, the administrator's time recording was broken down into half hour units.
It was the opinion of the court that such time recording would result in a general overcharging. For example, if the administrators were engaged in a telephone call for 15 minutes, then they would charge 30 minutes. The court has taken the view that any system which charges, not by the precise time used, but by units of time, will likely result in the client being charged for more time than is actually spent.
In addition, the system of time recording used did not specify the actual work carried out in relation to the time recorded. Therefore, the court was unable to ascertain who was doing what task or for how long in relation to any particular matter.
While the court agreed that use of such a time recording system made practical sense, its primary concern was to protect the interests of the creditors. It was the opinion of the court that the nature or efficiency of the work carried out could not be considered for the reasons stated above. Therefore, the court granted the motion and reduced the sum of remuneration payable to the administrators.
This is an important case for any accountancy firm which operates a time recording system for the purposes of charging their clients. Lord Glennie held that he would need "some persuading that it would ever be right to sanction payment of the whole amount claimed as remuneration [by the administrators] where the claim, based on hours worked, is calculated by using half hour units in this way, unless there was some other material showing that the recording of time in this way did not, in the particular case, unduly skew the time actually charged". Some insolvency practitioners may therefore wish to review their time recording systems in light of this decision.
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