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Last month the Court considered an application by a company’s former administrators to fix their remuneration*. The administrators had to make the application when the creditors’ committee refused to sanction their fees for work undertaken while the company remained in administration beyond the period set in the approved Proposals. The creditors’ committee included representatives of two of the company’s largest unsecured creditors. Those creditors were the driving force behind directing the period of administration should be as short as possible and that independent liquidators should then investigate into the company’s affairs.

The Court held that while creditors’ views should be considered, it was for the administrators to decide how best commercially to carry out their Proposals and secure the objective of the administration. Although the Proposals stated the administration would be closed within six months, this did not mean the administrators were not entitled to remuneration while they remained in office after that period. They were entitled to remuneration for their work as administrators during the term of their office, even if that work took longer than expected*.

The administrators had also asked the Court to fix their remuneration for work that they carried out at the request of the new liquidators after the company had gone into creditor’s voluntary liquidation. Administrators are entitled to remuneration for their services.  Not surprisingly the Court decided that it could not fix any remuneration for any period following the end of the administration. Any time costs the former administrators had incurred after the company went into liquidation were simply a matter for agreement between them and the liquidators.

So – success on the first issue in principle – the administrators were entitled to remuneration while they remained in office beyond the Proposals deadline.  The Court went on to consider the supporting evidence provided by the administrators for their remuneration. The Court applied the criteria and guiding principles contained in the Practice Direction on Insolvency Proceedings. The Court held the supporting information provided for the remuneration the administrators claimed was not enough to justify all the time they had spent.

The learning point is that Courts want to see contemporaneous time recording information showing what work was done at the time, rather than a reconstruction after the event when the information is needed to support a remuneration application. The case is timely in the context of the Government’s review into how IPs will be able to charge fees in the future and a reminder that office holders should approach the administration of their cases with this in mind from the outset so that if called on to justify their remuneration they are fully equipped to do so.

It’s not just the English Courts who are scrutinising liquidators’ fees more closely – in two recent linked cases the New South Wales Supreme Court was unhappy that the liquidators were going to be the main beneficiaries of the company’s estate. The Judge in those cases confirmed that hourly rates and time spent was only one factor in assessing what was reasonable remuneration – the risk assumed, proportionality and value generated were also key factors.

This post was edited by Fiona Emms. For more information, email blogs@gateleyuk.com.

*Under Insolvency Rule 2.106


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.