Talking about money: reducing government spending on bankruptcy procedures of 'empty boxes'? A TDABC-analysis

Talking about money: reducing government spending on bankruptcy procedures of ‘empty boxes’? A TDABC-analysis

The purpose of a bankruptcy procedure is to place the debtor’s assets under the control of a trustee in bankruptcy. The trustee has a central role in this procedure. Its task is to administer the estate, to liquidate the assets and to distribute any liquidation proceeds among the creditors. Such a complex procedure entails a certain workload (activities) and costs, in the form of the intervention of the trustee and other judicial actors.

Despite no systematic data being collected on this, in practice it often appears that undertakings in a state of bankruptcy have no significant assets to distribute among creditors. If it turns out that the assets are that insufficient that even the costs of administering and liquidation of the estate cannot be covered, Belgian insolvency law provides that the bankruptcy procedure can be closed for lack of assets or for insufficient assets. This decision by the court entails the dissolution of the legal entity and the immediate closure of the liquidation process.

It is argued that the bankruptcy of such 'empty boxes' costs the courts a lot of time and effort and apparently costs a lot of money for the State. In the context of efficient management of scarce human and financial resources of the State, such legal entities should be liquidated at the lowest possible cost. For this reason, the recent draft law transposing Directive (EU) 2019/1023 into Belgian insolvency law makes it possible to transfer from bankruptcy to judicial dissolution and immediate closure of the liquidation, without appointing a trustee.

However, that debate is lacking objective figures. The question is whether bankruptcy proceedings, with the appointment of a trustee, really entail such a high cost for the Belgian state. For bankruptcies where assets are not sufficient to pay the trustee's fees, the Belgian State, instead of the estate, pays a lump-sum fee of 1,215.51 euros. Using the Time Driven Activity Based Costing (TDABC) economic costing model, the actual cost of the workload and time spent by the trustee in bankruptcy proceedings can be calculated. Based on this method, a real economic cost price can be calculated for (the time spent on) the legally defined tasks (activities such as drawing up the inventory, verifying claims and drafting reports) that the trustee carries out.

All this should allow to examine the real added value of the trustee in a bankruptcy case that is closed due to insufficient assets. Only in this way can a sound cost-benefit analysis be made of the trustee's intervention. Innovatively, the TDABC model is thereby applied to legal proceedings.