Remuneration Approval Advice for Insolvency Practitioners

Remuneration means the professional fees of the office-holder and their staff. 

The office-holder’s remuneration can be calculated in one or more of the following ways: the time costs basis (the time spent by the office-holder and their staff), the asset value basis (i.e. a percentage of the value of the company’s or individual’s realised assets) or as a set amount. 

Remuneration can include a profit element.

Disbursements are the fees and expenses charged to the office-holder by third parties that the office-holder retains or employs over the course of the matter. 

For example, an office-holder will typically employ professional advisers to assist with the conduct of the administration, the liquidation or bankruptcy, such as solicitors and property valuers. 

In addition, the expenses of members of any creditors’ committee appointed also fall within the definition of disbursements.

The term expense has two meanings:

• Expenses of the administration, liquidation or bankruptcy. This includes a range of liabilities incurred by the office-holder after a company goes into administration or liquidation or after an individual is declared bankrupt.  The expenses are paid in priority to other creditors (other than those whose claims are secured by a fixed charge).  These expenses include the remuneration, disbursements and expenses of the relevant office-holder, rent payable on leasehold premises, the costs incurred in presenting a winding-up petition against a company or a bankruptcy petition against an individual and payments to parties prejudiced by an office-holder’s retention of property. 
• Expenses of the administrator, liquidator or trustee in bankruptcy.  The expenses of the office-holder are a narrower category than expenses of the administration of an insolvency estate and comprise those expenses properly incurred by the office-holder in performing their functions.

The office-holder’s allowable remuneration, disbursements and expenses can include certain fees, charges and expenses incurred by them or another insolvency practitioner before a company enters administration or liquidation. 

Where an administrator is appointed, they must include a statement of pre-appointment costs in the administrator’s proposals and such costs must be approved following the process set out in the Insolvency (England and Wales) Rules 2016.

An office-holder has a duty to send periodic progress reports to the creditors during the progress of the administration, liquidation or bankruptcy. 

The progress reports must contain specific information relating to the remuneration and expenses of the office-holder.  The office-holder must also provide certain information about time spent on the matter upon the request of a creditor. 

The provisions relating to such requests are set out in the Insolvency Act 1986, Insolvency (England and Wales) Rules 2016 and relevant Statements of Insolvency Practice. 

An office-holder who considers the rate or amount of remuneration fixed to be insufficient or the basis fixed to be inappropriate can request creditors and, in certain circumstances, the court to increase the amount or to change the basis to be applied. 

Where there is a material and substantial change in the circumstances that were originally taken into account in setting the basis of the office-holder’s remuneration, the office-holder may ask for the basis to be changed.  The office-holder must ask the same body that fixed the basis of their remuneration in the first place to make any change, whether that was the creditors' committee, the creditors or the court.  This right is in addition to the right of the office-holder to ask the creditors and the court to reconsider the basis of their remuneration if they are dissatisfied with it.

Suppose the court is asked to fix the basis of the office holder’s remuneration, or to consider whether the remuneration should be increased in response to an application by the office-holder. In that case, the court will adopt the approach laid down in Part 6 of the Practice Direction on Insolvency Proceedings.

We acted for the liquidator in a successful application to the court to increase the amount of our client’s remuneration.  The company’s creditors had previously agreed the amount and basis of our client’s remuneration but an application to the court had to be made when a material change in the work required to deal with the liquidation of the company resulted in the liquidator’s fees increasing and which required the court’s approval when the company’s creditors failed to approve the same. 

We acted for a trustee in bankruptcy in connection with a successful application to the court to fix the basis of our client’s remuneration as trustee in bankruptcy by reference to the time spent by our client and his staff in dealing with the bankruptcy.  The application was required due to the non-engagement of the creditors of the bankruptcy estate. 

One of the factors the court considered when determining the remuneration application is whether there had been any delay in the application being made.  Our client’s application to the court was made approximately four years after our client was appointed as trustee in bankruptcy which was a significant period of time.  Our client only decided to make the application to the court following the realisation of an amount of £150,000 into the bankrupt’s estate which enabled a distribution to creditors. 

Had our client’s application to the court been unsuccessful, our client’s remuneration would have been limited to the small, fixed amounts allowed pursuant to the Insolvency (England and Wales) Rules 2016 which would not have adequately compensated our client for the significant amount of work carried out on the matter which enabled a significant dividend to be paid to the bankrupt’s creditors. 

We acted for the joint liquidators of an engineering company in a successful application to the court where the court approved the basis and amount of our client’s remuneration.  The application to the court was required when the company’s creditors failed to approve the same.