Trustees’ Rewards as a Mean of Achieving ex post Effectiveness of Insolvency Proceedings

The article seeks to analyse if rewarding insolvency trustees could be used as a tool for incentivizing trustees to pursue ex-post efficiency of insolvency procedures. Although this is an essential topic in insolvency law, literature is scarce. In conducting the study, the author assumed that trustees are agents of creditors (principals) and he examined how trustees could be incentivised to work for the interests of creditors. In doing so, the author concludes that in accordance with a rational approach theory we should be in favour of such reward models that would motivate managers to maximize the value of the debtor’s assets and to minimize the cost of the procedure and achieve the highest possible payment for the creditors. The analysis of procedural costs and insolvency trustee rewards demonstrates that the costs of the procedure are on average and in the median case substantially to high, while the trustees’ rewards are statistically significantly dependent primarily on the bankruptcy estate amount, the assets value evaluated by the trustee in the opening report and the repayment of creditors. At the same time, the data shows that trustees are paid far less, both in absolute terms as well as in terms of percentage of the bankruptcy estate compared to their counterparts in the selected analysed countries. The author concludes that the existing system of rewarding trustees is suboptimal in terms of seeking to achieve incentives to strive towards ex-post efficient management of the bankruptcy estate.

Keywords: insolvency law, bankruptcy, bankruptcy costs, bankruptcy proceedings, trustees’ payment.