Insolvency Rules 2016 - Remuneration of Officeholders
Wednesday, 19th April 2017
Rules 18.15 to 18.38 of the Insolvency Rules 2016 deals with remuneration principles, fixing of remuneration, challenges by creditors and applications to Court by officeholders in relation to their remuneration placing all the rules surrounding remuneration in one place as opposed to dotted around the various procedures in the old rules.
Rule 18.16 sets out the general principles as to how administrators, liquidators and trustees can be remunerated and is largely unchanged from the old rules.
There is clarity the rules do not apply to MVLs but the three bases of remuneration remain with fee estimates being required for any requests to fix fees based on time spent.
As before the usual information has to be provided before fixing a basis of remuneration and there is clarity in rule 18.10 that a proposed liquidator may provide the information prior to being appointed liquidator. This clears up any ambiguity caused by the introduction of the rules on fee estimates in the Insolvency Rules 1986.
Rule 18.17 provides that it is for joint liquidators to agree between themselves how any remuneration should be apportioned but in the absence of agreement it shall be determined by -
- The creditors committee; or
- The creditors (by a decision procedure); or
- The Court.
Fixing of remuneration by procedure
The rules for Administrations (18.18), CVLs (18.20) and bankruptcy (18.21) are largely similar in that -
- They are firstly fixed by a creditors committee; or
- Creditors by a decision procedure;
In administrations where there is not going to be a distribution to the unsecured creditors then the old rule still applies regarding approval by secured and/or preferential creditors.
Where CVL follows administration the liquidator's fees are fixed on the same basis as the previous administrator.
Scale fees apply in the absence of approval and fees must still be fixed within 18 months.
Click here to read the article covering new decision making procedures.
Court Application to fix remuneration
Pursuant to rule 18.23(1) if, having tried to fix a CVL liquidator's or administrator's remuneration, remuneration is not fixed then the officeholder must apply to Court for it to be fixed.
This is a marked change from the old rules whereby it was not mandatory (but certainly advisable) to make the application to fix remuneration.
The application must be made within 18 months.
Increases in remuneration
Rule 18.24 applies. If either the -
- Rate; or
- Amount; or
is insufficient then either the creditors or the Court can authorise an increase.
Creditors (assuming the fees were fixed by a committee) can approve by way of a qualifying decision procedure subject to an exception -
- 18.26 - where there is a para 52(1)(b) statement has been made then either the secured or secured and preferential creditors can approve (depending on who is in the money);
There is a further exception in rule 18.27 where liquidation follows administration and
- an administrator becomes liquidator; and
- the remuneration has been determined by the committee in the administration; and
- the basis of the liquidators remuneration is treated as having been fixed by the previous administration; and
- the administrator had previously requested an increase
then the increase can only be resolved by an application to Court.
Request by officeholder to review remuneration
Rule 18.29 applies where after the basis of the office-holders remuneration has been fixed there is "a material and substantial change in circumstances" the officeholder can request for the basis to be changed.
This is not retrospective and is approved in the same way as remuneration is initially fixed (ie committee, creditors etc)
Recourse to Court
The officeholder (including a trustee) retains an option to apply to Court to change the basis or fix remuneration in much the same way as previously (rule 18.28).
14 days' notice must be given to the committee (or creditors if no committee) of the hearing and this will be clear days.
The committee or creditors can make representations at the hearing and the Court retains power to approve their costs as an expense of the administration (18.28(7) and (8)).
Creditors equally retain the power to challenge excessive remuneration (18.34). The creditor must either be -
- be a secured creditor; or
- be 10% of the total unsecured creditors; or
- have the permission of the Court.
The application has to be made within 8 weeks of a progress report or final report.
Similar rules apply for bankruptcy (18.35) but there must be a surplus (or would be one but for the remuneration) to give the bankrupt locus to challenge. It remains possible to challenge remuneration in an annulment situation.
Exceeding Fee Estimates
Rule 18.30 applies. An officeholder cannot draw remuneration in excess of a fee estimate without approval. Approval needs to be given by whoever approved the remuneration in the first instance.
Reasons need to be given for the increase or anticipated increase as before.