The Background

Both the Insolvency Act 1986 and the Insolvency Rules 2016 provide for the remuneration of office-holders (i.e. administrators, liquidators and trustees in bankruptcy) in both corporate and personal insolvencies.

The remuneration of administrators, liquidators and trustees in bankruptcy can be fixed in one or more of the following ways:

  • On the basis of the time spent by the administrator and their staff in conducting the administration, liquidation or bankruptcy (the time costs basis);
  • As a percentage of the value of the insolvent company’s or individual’s assets (the asset value basis);
  • As a fixed fee.  

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Seeking Approval From the Creditors

Since 1 October 2015, if an office-holder proposes to be remunerated (in whole or in part) on a time-cost basis, the office-holder must provide a fee estimate to creditors for approval before carrying out the job.

That fee estimate must not be exceeded without the prior approval of the creditors or the court (depending on who fixed the basis of the office-holder’s remuneration and gave the original approval). The Insolvency Rules set out what the fee estimate must include.

An office-holder’s remuneration, in the main, will come from the assets of the company or bankruptcy over which they are appointed. Creditors, therefore, have a direct interest in the level of costs of the office-holder. The Insolvency Act and Insolvency Rules recognise this and allow for creditors to determine the basis of an office-holder’s remuneration.

Creditors have the right to form a committee with a minimum of three and a maximum of five members. One of the functions of the committee is to determine the basis of the office-holder’s remuneration. Unfortunately, in many circumstances, creditors fail to form a committee or even respond to the office-holder’s request to fix their remuneration.

If there is no creditors’ committee, remuneration may be fixed by a decision of the creditors using a decision making procedure.

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Making an Application to the Court

Suppose the creditors fail to set the basis of the office-holder’s remuneration. In that case, the office-holder must apply to the court for an order fixing the basis of their remuneration. In the context of an administration or creditors’ voluntary liquidation, the application to the court must be made within 18 months of the administrator’s or liquidator’s appointment.

Where more than 18 months have passed since the appointment, only the creditors can fix the basis of the administrator’s or liquidator’s remuneration.  

In any court application regarding an office-holder’s remuneration, the court will aim to strike a balance between compensating office-holders fairly for their work and protecting the interests of creditors by ensuring that the office-holder’s fees are reasonable and justifiable.

Part 6 of the Practice Direction on Insolvency Proceedings sets out nine guiding principles, which are to be considered by office-holders when preparing and presenting the court application and by the court itself when determining the application. Those guiding principles are:

  • The onus is on the office-holder to justify the basis and level of remuneration, and the office-holder must prepare and provide full details of the basis for and nature of their claim for remuneration.  
  • If there is any doubt as to the appropriateness, fairness or reasonableness of the remuneration sought, then such element of doubt should be resolved by the court against the office-holder.
  • The court should give weight to the fact that the office-holder is both a member of a regulated profession and is, therefore, subject to rules and guidance on professional conduct and an officer of the court.  
  • The remuneration of the office-holder should reflect the value of the service rendered by them, not simply reimburse the office-holder in respect of time spent and costs incurred.  
  • The amount and basis of the office-holder’s remuneration should represent fair and reasonable remuneration for the work properly undertaken or to be undertaken.
  • The nature and extent of information that the office-holder should provide to the court should be proportionate to the amount of remuneration to be fixed, the nature, complexity and extent of the work completed or to be completed and the value and nature of the assets and liabilities with which the office-holder has to deal.  
  • The amount and basis of remuneration to be fixed by the court should be proportionate to the nature, complexity and extent of the work completed or to be completed, the value and nature of the actual and potential assets and liabilities with which the office-holder has to deal, the nature and degree of responsibility to which the office-holder has been subject, the nature and extent of the risk assumed by the office-holder and the efficiency with which the office-holder has completed the work undertaken.
  • The court may consider the extent of the office-holder’s compliance with any statements of practice (for example, a SIP 9). 
  • The court will take into account whether any application should have been made earlier and, if so, the reasons for any delay in making it.  

When making an application to the court, a witness statement from the office-holder will need to be prepared, guiding the court through the timeline of the office-holder’s role placing particular emphasis on the attempts made to obtain creditor approval.

The witness statement should also address key issues which the office holder faced, and the work carried out which required additional time and cost. Additionally, the Practice Direction requires that work should be described by reference to particular categories, such as time spent on the realisation of assets and investigations.

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Myerson’s Insolvency & Restructuring Team have significant experience in acting for office-holders in applications to the court regarding remuneration approval. If you are an office-holder who needs assistance with a fee remuneration approval application, please get in touch with us.

0161 941 4000