In Frost & Anor v The Good Box Co Labs Ltd & Ors [2024] EWHC 422 (Ch), the Court accepting that former administrators do have standing to make an application to increase amount of their remuneration under rules 18.24 and 18.28 of the Insolvency (England & Wales) Rules 2016.
However, in this case, the former administrators' application was rejected on the basis that what the joint administrators were seeking was not caught within any of the relevant rules.
Background
Joint administrators were appointed over The Good Box Co Labs Limited (the “Company”) on 28 June 2022.
On 30 December 2022, the Company's creditors passed a resolution fixing the Joint Administrators' remuneration by reference to the time properly spent by them charged at their hourly rates, and approving fees of £235,000 plus VAT.
On 16 January 2023, a restructuring plan in respect of the Company was approved and the Joint Administrators' appointment as administrators ceased to have effect on 26 January 2023.
The restructuring plan provided for payment of the fees approved in the resolution within 14 days of the effective date of the restructuring plan. It also provided that any other remuneration claimed by the administrators would be subject to an adjudication process and, in the absence of agreement with the plan administrators, the Administrators could apply to court for approval of their remuneration in accordance with rules 18.24 and 18.28 IR 2016.
The Joint Administrators made a claim of £229,751.38 to the plan administrators under the adjudication process. Approximately £209,000 of that amount represented a claim for fees over and above the £235,000 payment. The plan administrators did not admit the claim for the additional £209,000 and the former Administrators made an application under rules 18.24 and 18.28 IR 2016 for court approval of the additional remuneration.
Court's decision
The Court was required to opine on two issues, namely:
a. Did the former Administrators have standing to make an application under rule 18.28(1) of IR2016 in view of their no longer being office-holders of the Company at the time of the application.
- In relation to the preliminary issue for determination the Court accepted that the joint administrators had standing to issue the application under rule 18.28.
- The Court accepted that the ordinary meaning of "an office-holder" and of "an administrator" is of an insolvency practitioner who is currently in office. However, it is not enough simply to ascribe their ordinary meaning to "an office-holder" and "an administrator" — rules 18.24 and 18.28 must be looked at in context. Looking at these rules in the context of the whole of the chapter in question, the Court noted that various other rules in the chapter refer to simply “office-holders”, “liquidators“ and “administrators” where the rules likely mean former office holders, former liquidators and former administrators. (see, e.g., rules 18.34 and18.23).
- The Court found assistance in the Supreme Court’s decision in Brake v. The Chedington Court Estate Ltd, [2023] 1 WLR 3035. The Court stated that two points emerged from Brake on the proper approach to determining whether an applicant has standing to make an application: (1) the Court will adopt a purposive interpretation of insolvency legislation, and (2) the Court's focus will likely be on whether the outcome of the application will directly affect the applicant's rights or interests in connection with powers conferred by the statutory insolvency regime. The Court concluded that former administrators can be directly affected by the outcome of a rule 18.28 application.
b. Given that the former Administrators contended that their remuneration was fixed by the resolution on a time-cost basis, were they entitled make a rule 18.28 application.
- The Court's decision was 'no'.
- The Court held that rules 18.24 and 18.28 aim to provide a mechanism to office-holders (i) to obtain an increase in the percentage(s) of the value of the relevant assets to which it has been initially determined the office-holders are entitled; or (ii) to obtain an increase in the set amount which it has been initially determined they will be paid; or (iii) to obtain a change in the basis (or bases) of remuneration set out in rule 18.16(2) IR 2016 which it has initially been determined the office-holders are entitled; or (iv) to obtain an increase in their charge out rates when their remuneration has initially been fixed on the time-cost basis.
- The Court's view was that the former Administrators Applicants were not seeking an increase in the rate or amount of their remuneration fixed by the approval of the resolution and nor were they seeking a change in the basis of their remuneration: what they were seeking did not fall within the ambit of a rule 18.28 application.
- The Court concluded that since the former Administrators did not consider that the rate or amount of remuneration fixed by the resolution was insufficient or that the basis so fixed is inappropriate, they do not have standing under rule 18.24 to make a rule 18.28 application.
This is a reassuring decision in relation to the standing of former office holders to make applications to the Court under rules 18.24 and 18.28. However, remuneration claimed in excess of an agreed payment on account does not fall within the scope of rules 18.24 or 18.28, (although the Court suggested there may be alternative applications that could be made). The facts of this decision are somewhat unique, but it also serves as a timely reminder to approach remuneration with caution.
