Issue: July/Sept 2010
Editorials

CURATORSHIPS

Fat fees examined

Many professionals, outside the loop, have come to believe that curatorships are a gravy train. They suggest that they can do the same work for more reasonable remuneration. Let them try.

Dube Tshidi

Tshidi...the why's and the wherefore's

The controversy over curators’ fees, stirred by this publication (TT April-June ’10), is not whether the need is justified but whether the amounts are excessive – sometimes obscene -- in relation to the recoveries for pension-fund members that curators are able to effect.

Arguments will fly hither and thither. When many millions of rand in fees can be earned, as they are, and Finance Minister Pravin Gorhan suggests that a review of the compensation system is required, as he has, the arguments will intensify. With good reason, if curators aren’t made to look like bounty hunters.

Is it possible to reduce the temptation for stretching out curatorship periods, so that curators paid at an hourly rate are not eventually paid quite as much? Or to renegotiate the fee structures, to lower levels, once the agglomeration of hourly or contingency fees starts looking seriously disproportionate to the work undertaken and results achieved? But then how is the risk/reward ratio to be measured against the benefit to fund members who ultimately pay from the recoveries they receive?

And, since curators appear to be appointed from a relatively small pool of professionals, can’t the pool be extended inorder that compensation levels are reduced by competition? Perhaps by putting appointments out to tender, inviting applications from amongst the horde of attorneys and accountants able to demonstrate competence, or by them simply making known to the regulator their availability for consideration as curators?

Not so simple, says Dube Tshidi, executive officer of the Financial Services Board which effectively nominates curators that the courts ratify. This is invariably after an FSB investigation of its own that motivates the need to place an errant body under curatorship.

“You can’t have regulation without curatorships,” he points out. “After our investigation, the curators have powers to investigate further. Without fail, they pick up more issues for investigation. Once the curator reports on the additional issues, and shows why it’s necessary for him to continue so that they can be nailed, the court’s consent for him to continue leads to the curatorship duration being extended and the curator’s fee income to increase. Don’t look only at the fees butat the work curators put in to earn them.”

He further explains the procedure:

Curators are appointed by a court under s5 of the Financial Institutions (Protection of Funds) Act on application by the FSB executive officer (the Registrar). The Act doesn’t specify any requirement for identification of curators. The Registrar identifies and nominates proposed curators for consideration and appointment by the court.

In doing so, the Registrar has regard to the contents of each FSB inspection report or information that that informed the decision to apply for appointment of a curator. This entails an assessment of the skills and expertise required to address the specific problems besetting an institution. In each instance it’s anad hoc process, given the urgent intervention usually required to address the problems uncovered during an inspection.

Curatorship is a regulatory tool at the Registrar’s disposal. Appointment of a curator is not an outsourcing function or service that would require a tender process.

This tool is generally applied by the Registrar under circumstances which demand urgent regulatory intervention in the interests of investors or the public. As such, curatorship applications are generally brought on an urgent basis. The exigencies of any particular case simply do not allow for a “tender process” and may unduly delay urgent regulatory action.

In identifying proposed curators, the Registrar generally takes into account:

  • The task that curators need to undertake in each instance, given the peculiar facts uncovered during the inspection;
  • The independence of management and control to be exercised by a curator;
  • The expertise introduced, or capable of introduction, in into the affected financial institution.

When the Registrar applies for a curator’s appointment, he attaches to the court papers the candidate’s CV. The court must be satisfied of the candidate’s suitability. At the outset, before confirmation of final orders, curatorship orders are provisional and widely published. It’s at this stage that interested parties are invited to show why appointment of the proposed curator shouldn’t be made final.

Because there are no guidelines in the Act for a court to determine the curator’s fees, the practice is for the FSB to submit a draft order stating that the curator will be remunerated in accordance with the norms of his or her profession “as agreed with the Registrar”. In practice, it means that the curator and Registrar agree on an hourly tariff or, where the curator is an auditor, a fee equal to the Auditor General’s tariff for outsourced work.

As the remuneration of a curator could still be too high, even when it is being made in accordance with professional norms, since 2007 the FSB has agreed with curators to have their fees capped at a certain monthly figure.

The capped figure is calculated on the formula fee x 8 x 21, where 8 is the number of hours worked per day and 21 the number of working days per month. The fee for senior legal practitioners has been set at between R1 600 and R2 000 per hour, which translates into a saving as these rates are well below current charges in terms of their professional norms. [Ed’s note: Such a “saving” appears to imply that the senior practitioner works only on the curatorship, and nothing else, for 168 billable hours per month, and that he delegates nothing to juniors in his firm.]

Only in the instances of the Datakor pension fund, Datakor retirement fund and Cortech pension fund did the Registrar ask the court to sanction the curator’s remuneration on a contingency basis. This was because there were no assets in the funds with which to pay the curators.

Wryly, with a sphinx-like smile, Tshidi adds: “The better situation for me would be if I could go to industry associations, such as ASISA, and get them to control their members. If they ensured that their members acted in clients’ best interests, we wouldn’t have these problems. Instead, it’s some of their members who’re causing the problems.”