UK: Office Holders’ Remuneration

It is not often that office holders’ remuneration comes before a court. For many sorts of office holder there are provisions for the remuneration to be agreed with a committee or the creditors generally. SIP 9 provides guidance on the information to be provided to such bodies. In the last resort application can be made to the court.

In the case of provisional liquidators, the remuneration must be fixed by the court and Insolvency Rule 4.30 sets out the matters to be taken into account. In three cases involving insolvent insurance companies (Independent, BAI and most recently UIC) an assessor was appointed to advise the court.

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In most cases, a provisional liquidator is in office for only a short time. In the case of insolvent insurance companies, it was the practice, until administration became available at the end of May 2002, for provisional liquidators to be appointed. Frequently they were in office for a number of years until a scheme of arrangement was put in place, sometimes even beyond that. In most of these cases the remuneration has been fixed by a registrar and little information has been made public.

Some of the main points in the high court judgment in the UIC case are worth noting because they will be relevant to other insolvency office holders.

1. The narrative provided by the provisional liquidator to support his application should be sufficient to prove what work has been done, not in terms of the actual activity (writing a letter, attending a meeting etc) but by reference to the nature of the work the fee earner was engaged on. This should be sufficient to enable the court to assess whether the work was necessary or worthwhile, whether or not excessive time was spent on it and whether or not it was done at the right level of delegation. If tasks are performed by overqualified persons, there should be a reduction in the remuneration claimed in order to reflect this. A deduction made by the registrar by reference to what were described as "null and unhelpful entries" was upheld.
2. When an outside consultant is employed, he should be charged as an expense. It is not legitimate for the provisional liquidator to seek remuneration for this at a higher rate than the consultant’s actual fee, as if he were being charged as a member of the provisional liquidator’s firm’s staff.
3. The registrar considered that the hourly rates claimed were at the high end of a reasonable level, and because of the inadequacy of the evidence put forward by the provisional liquidator the registrar was not willing to allow such high rates. The judge did not consider that decision to be wrong or one which was not available to the registrar on the material before him. Nor was he swayed by the provisional liquidator’s claim that when a scheme of arrangement was eventually put in place, 10 years after the provisional liquidation began, creditors would receive 145p in the £ as opposed to 26p which was in prospect when they were appointed. The judge held that provisional liquidators are not entitled to a "success fee". The success of the provisional liquidation has to be taken into account but the court is not permitted to award an extra success fee beyond reasonable remuneration. The effect of "success" is that the court is likely to be more favourably inclined to the remuneration claimed, but not so as to allow more than is fair and reasonable.
4. Time should not be recorded in 15 minute units. 6 minutes is now the norm.

Where an appointment is expected to run for some time, the office holder will wish to have provision for sums to be drawn on an interim basis, pending final determination by the court. The judge ruled that it is not appropriate for the court to order that he may be paid by reference to his firm’s hourly partner rate. This rate may be a starting point, but the court must still decide whether that rate is appropriate in the circumstances. As this will be difficult to determine early in a lengthy case, such office holders may have to be content with a percentage of the hourly rate as an interim measure, leaving room for adjustment at a later date with much lesser risk of there being an excess to be repaid to the estate.

As this case was contested until near the very end, issues arose as to costs which will not be applicable in all cases. The judge agreed with the registrar that the provisional liquidators should be reimbursed reasonable costs for preparing the application and providing evidence. The judge did not accept that all the trial costs of the provisional liquidators should be borne by them personally and that the objecting creditor’s trial costs should be paid by them personally with no right of reimbursement from the estate. Whilst the provisional liquidators plainly lost on some issues, it was wrong to require the provisional liquidators in effect to bear all the costs of the hearings nor was it right that the costs of the provisional liquidators and the creditor should all come out of the estate. Accordingly certain matters as to costs were reserved.

Note: Peter Fidler was the first practising solicitor to be appointed an assessor by a High Court judge in a provisional liquidator’s remuneration application.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

The original publication date for this article was 01/12/2006.