1.1 When a company goes into liquidation the costs of the proceedings are paid out of its assets. The creditors, who hope to recover some of their debts out of the assets, therefore have a direct interest in the level of costs, and in particular the remuneration of the insolvency practitioner appointed to act as liquidator. The insolvency legislation recognises this interest by providing mechanisms for creditors to fix the basis of the liquidator’s fees. This guide is intended to help creditors be aware of their rights to approve and monitor fees, explains the basis on which fees are fixed and how creditors can seek information about expenses incurred by the liquidator and challenge those they consider to be excessive.
2 Liquidation procedure
3 The liquidation committee
progress of the liquidation, unless the committee directs otherwise. This provides an opportunity for the committee to monitor and discuss the progress of the insolvency and the level of the liquidator’s fees.
4 Fixing the liquidator’s remuneration
carried out, his duties;
the value and nature of the assets which the liquidator has to deal with.
Where there has been a material and substantial change in circumstances since the basis of the liquidator’s remuneration was fixed, the liquidator may request that it be changed. The request must be made to the same body as initially approved the remuneration, and the same rules apply as to the original approval.
6 What information should be provided by the liquidator?
6.1 General principles
6.2 Key issues
6.2.1 The key issues of concern to those with a financial interest in the level of payments from the insolvency estate will commonly be:
the work the liquidator anticipates will be done, and why that work is necessary;
6.2.2 When approval for a fixed amount or a percentage basis is sought, the liquidator should explain why the basis requested is expected to produce a fair and reasonable reflection of the work that the liquidator anticipates will be undertaken.
6.3 Fee estimates and subsequent reports
6.3.1 When providing a fee estimate, the liquidator should supply that information in sufficient time to facilitate that body making an informed judgement about the reasonableness of the liquidator’s requests. The estimate should clearly describe what activities are anticipated to be conducted in respect of the estimated fee. When subsequently reporting to creditors, the actual hours and average rate (or rates) of the costs charged for each activity should be provided for comparison.
6.4.1 Costs met by and reimbursed to the liquidator in connection with the liquidation will fall into two categories:
Category 1 disbursements: These are payments to independent third parties where there is specific expenditure directly referable to the liquidation. Category 1 disbursements can be drawn without prior approval, although the liquidator should be prepared to disclose information about them in the same way as any other expenses. Category 2 disbursements: These are costs that are directly referable to the liquidation but not to a payment to an independent third party. They may include shared or allocated costs that may be incurred by the liquidator or their firm, and that can be allocated to the liquidation on a proper and reasonable basis.
When seeking approval, the liquidator should explain, for each category of cost, the basis on which the charge is being made. If the liquidator has obtained approval for the basis of Category 2 disbursements, that basis may continue to be used in a sequential appointment where further approval of the basis of remuneration is not required, or where the liquidator is replaced.
6.4.2 The following are not permissible as disbursements:
6.5 Realisations for secured creditors
Where the liquidator realises an asset on behalf of a secured creditor and receives remuneration out of the proceeds (see paragraph 11.1 below), he should disclose the amount of that remuneration to the committee (if there is one), to any meeting of creditors convened for the purpose of determining his fees, and in any reports he sends to creditors.
8.1 The liquidator is required to send annual progress reports to creditors. The reports must include:
Where appropriate, a statement –
A statement of the creditors’ rights to request further information, as explained in paragraph 8.2, and their right to challenge the liquidator’s remuneration and expenses.
8.2 Within 21 days of receipt of a progress report (or 7 business days where the report has been prepared for the purposes of a meeting to receive the liquidator’s resignation) a creditor may request the liquidator to provide further information about the remuneration and expenses set out in the report. A request must be in writing, and may be made either by a secured creditor, or by an unsecured creditor with the
concurrence of at least 5% in value of unsecured creditors (including himself) or the permission of the court.
8.3 The liquidator must provide the requested information within 14 days, unless he considers that:
9. Provision of information – additional requirements
The liquidator must provide certain information about the time spent on the case, free of charge, upon request by any creditor, director or shareholder of the company.
The information which must be provided is –
10 What if a creditor is dissatisfied?
10.4 If the court considers the application well founded, it may order that the remuneration be reduced, the basis be changed, or the expenses be disallowed or repaid. Unless the court orders otherwise, the costs of the application must by paid by the applicant and not out of the assets of the insolvent company.
11. What if the liquidator is dissatisfied?
If the liquidator considers that the remuneration fixed by the liquidation committee, or in the preceding administration, is insufficient or that the basis used to fix it is inappropriate he may request that the amount or rate be increased, or the basis changed, by resolution of the creditors. If he considers that the remuneration fixed by the liquidation committee, the creditors, in the preceding administration or in accordance with the statutory scale is insufficient, or that the basis used to fix it is inappropriate, he may apply to the court for the amount or rate to be increased or the basis changed. If he decides to apply to the court he must give at least 14 days’ notice to the members of the committee and the committee may nominate one or more of its members to appear or be represented at the court hearing. If there is no committee, the liquidator’s notice of his application must be sent to such of the creditors as the court may direct, and they may nominate one or more of their number to appear or be represented. The court may order the costs to be paid out of the assets.
12 Other matters relating to remuneration
13. Effective date
This guide applies where a company goes into liquidation on or after 1 October 2015.
Suggested format for the provision of information
Professional guidance issued to insolvency practitioners sets out the following suggested format for the provision of information when seeking approval of remuneration. However, the level of disclosure suggested below may not be appropriate in all cases, and will be subject to considerations of proportionality. In larger or more complex cases the circumstances of each case may dictate the information provided and its format.
Narrative overview of the case
In all cases, reports on remuneration should provide a narrative overview of the case. Matters relevant to an overview are:
Time cost basis
Where any part of the remuneration is or is proposed to be calculated on a time costs basis, requests for and reports on remuneration should provide:
An explanation of the liquidator’s time charging policy, clearly stating the units of time that have been used, the grades of staff and rates that have been charged to the assignment, and the policy for recovering the cost of support staff. There is an expectation that time will be recorded in units of not greater than 6 minutes.
A description of work carried out, which might include:
It is useful to provide time spent and charge-out value information in a tabular form for each of the time periods reported upon, with work classified (and sub-divided) in a way relevant to the circumstances of the case
The following areas of activity are suggested as a basis for the analysis of time spent: