OPINION:Accountancy and legal professions appear to be still living in 'Celtic Tiger bubble land'

WITH THE examinerships, receivership and liquidations coming thick and fast down at the Four Courts, the decision by Ms Justice Mary Finlay Geoghan to try and bring some sense to the whole issue of examinership fees last week was welcome insofar as it went.

The judge was ruling on an action by ACCBank and Ulster Bank challenging the fees run up by the unsuccessful examiner of the Thomas Read Group of pubs, Kieran McCarthy of accountants Hughes Blake.

It had been an expensive business, with the bill coming to €1,072,126 split between McCarthy, who sought €554,109, and his solicitors Lyons Kenny, who claimed €346,275. Their senior counsel Lyndon McCann charged €104,611 and his junior Ross Gorman charged €66,271.

The court reduced the fees to €375,000 plus VAT for the examiner and €350,000 plus VAT for the aggregate legal professional fees.

Ms Justice Finlay Geoghan also established an important point, which is that when a group of companies goes into examinership, the fees incurred in respect of each company by the examiner can only be recouped from that company, rather than the group as a whole.

Nonetheless, €725,000 plus VAT is still a lot of money for something that did not work. This would support the argument that the legal and accountancy professions rather lost the run of themselves in the good times and as yet have to confront the new economic reality.

The establishment of Nama will put the State – and the taxpayer – at the heart of pretty much every big insolvency case to come to court in the next few years. It is thus vital that the whole issue of legal costs is addresses.

The most striking thing about the challenge brought against the examinership costs by the banks was that they did not query in any way the actual rates charged by the lawyers and accountants.

The challenge focused instead on issues such as whether all the work that was done came within the fee agreed at the outset between the examiner and the directors of the company and that sort of thing.

What nobody seems to have questioned is whether it was reasonable to be allowed to charge, as Lyons Kenny did, €1,250 for getting someone to spend five hours scanning, photocopying and preparing booklets for court.

It seems like an extraordinarily large amount of money, even if you accept that this not just any old scanning and photocopying and requires the level of expertise one might associate with a recently qualified solicitor or legal secretary at the top of their game.

A newly qualified solicitor or good legal secretary could earn €60,000 a year. Assuming they work 50 hours a week – more than the working time directive allows – they earn less than €25 an hour, but clients appear to be billed 10 times that for their work.

Add in what you like for overheads, taxes and so on, but you are not going to get anywhere near €250.

The documents in the Thomas Read costs case include very detailed breakdowns by Lyons Kenny and Hughes Blake of the work done and the fees charged.

Here are a few other examples: €1,250 for five hours spent by one employee on “general photocopying, e-mails”; €3,500 for two employees who spent “7 hours each – 15 booklets of papers prepared”.

The fees charged by the two principles in the firm, Graham Kenny and Barry Lyons, are also detailed, as are the fees of the examiner Kieran McCarthy.

Kenny, for example, claimed €2,700 for six hours spent on: “Review of the management accounts. Consultation with Kieran McCarthy regarding extensions of time for the submissions of interests in the purchase of the group.”

McCarthy claimed €1,200 for what is presumably his half of the meeting; three hours work on the same day under the following (investment/due diligence (seven companies). Perhaps that is the nub of the problem.

What incentive does McCarthy have to push down the fees charged by Kenny for giving him legal advice, when his own fees are of a similar magnitude and charged on a similar basis, to the same ultimate client?

Many in the legal and accountancy professions seem to be still living in some sort of “Celtic Tiger bubble land” in which you can still charge €250 an hour to get someone to do photocopying, despite the fact that there are tens of thousands of people out of work, including hundreds of solicitors.

You could take it as given that you would not have to walk too far down the dole queues before you found someone capable of organising, photocopying and binding documents for court who would be happy to do it for the minimum wage.

How we got to this state of affairs is another day’s work, but it was obviously part of the collective greed and madness which engulfed us all. A painful readjustment is taking place elsewhere in the economy, but it is clearly still 2007 as far as some in the professions are concerned.

A rude awakening is in order.