1.1 When a company goes into administration the costs of the proceedings are paid out of its assets. The creditors, who hope eventually 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 administrator. The insolvency legislation recognises this interest by providing mechanisms for creditors to determine the basis of the administrator’s fees. This guide is intended to help creditors be aware of their rights under the legislation to approve and monitor fees, explains the basis on which fees are fixed and how creditors can seek information about expenses incurred by the administrator and challenge those they consider to be excessive..
2 The nature of administration
2.1 Administration is a procedure which places a company under the control of an insolvency practitioner and the protection of the court with the following objective:
likely if the company were wound up without first being in administration,
or, if the administrator thinks neither of these objectives is reasonably practicable
realising property in order to make a distribution to secured or preferential creditors.
3 The creditors’ committee
3.1 The creditors have the right to appoint a committee with a minimum of 3 and a maximum of 5 members. One of the functions of the committee is to determine the basis of the administrator’s remuneration. The committee is normally established at the meeting of creditors which the administrator is required to hold within a maximum of 10 weeks from the beginning of the administration to consider his proposals. The administrator must call the first meeting of the committee within 6 weeks of its establishment, and subsequent meetings must be held either at specified dates agreed by the committee, or when a member of the committee asks for one, or when the administrator decides he needs to hold one. The committee has power to summon the administrator to attend before it and provide information about the exercise of his functions.
4 Fixing the administrator’s remuneration 4.1 Basis
The basis for fixing the administrator’s remuneration is set out in Rule 2.106 of the Insolvency Rules 1986, which states that it shall be fixed:
Any combination of these bases may be used to fix the remuneration, and different bases may be used for different things done by the administrator. Where the remuneration is fixed as a percentage, different percentages may be used for different things done by the administrator.
Prior to the determination of the basis of remuneration, the administrator must give the creditors details of the work the administrator proposes to undertake, and the expenses he considers will be, or are likely to be, incurred. However, where the administrator proposes to take any part or all of his remuneration on a time cost basis, he must provide more detailed information in the form of a ‘fees estimate’, as explained below.
Where the administrator proposes to take remuneration based on time costs, he must first provide the creditors with detailed information in the form of a ‘fees estimate’. A
fees estimate is a written estimate that specifies –
part of that work;
further approval under the Rules; and
In addition, the administrator must give the creditors details of the expenses he considers will be, or are likely to be, incurred.
The fees estimate and details of expenses may include remuneration anticipated to be charged and expenses anticipated to be incurred if the administrator becomes the liquidator where the administration moves into winding up.
It is for the creditors’ committee (if there is one) to determine on which bases, or combination of bases, the remuneration is to be fixed. Where it is fixed as a percentage, it is for the committee to determine the percentage or percentages to be applied, and where it is a set amount, to determine that amount. Rule 2.106 says that in arriving at its decision the committee shall have regard to the following matters:
out, or to have carried out, his duties;
creditors as described above, and in any case not later than 18 months after his appointment.
In this case, if there is no creditors’ committee, or the committee does not make the requisite determination, the remuneration may be fixed by the approval of –
debts of the company, disregarding debts of any creditor who does not respond to an invitation to give or withhold approval,
having regard to the same matters as the committee would.
Note that there is no requirement to hold a creditors’ meeting in such cases unless a meeting is requisitioned by creditors whose debts amount to at least 10 per cent of the total debts of the company.
5.1 Where there has been a material and substantial change in circumstances since the basis of the administrator’s remuneration was fixed, the administrator 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. Approval of pre-administration costs
7 What information should be provided by the administrator?
7.1 General principles
The administrator should inform creditors of their rights under insolvency legislation, and should advise them how they may access suitable information setting out their rights within the first communication with them and in each subsequent report.
7.2 Key issues
it, as against any estimate provided;
benefit (or if the work provided no direct financial benefit, but was required by statute).
When providing information about payments, fees and expenses, the administrator should do so in a way which facilitates clarity of understanding of these key issues. Narrative explanations should be provided to support any numerical information supplied. Where it is practical to do so, the administrator should provide an indication of the likely return to creditors when seeking approval for the basis of his remuneration.
7.3 Fee estimates and subsequent reports
7.3.1 When providing a fee estimate, the administrator should supply that information in sufficient time to facilitate that body making an informed judgement about the reasonableness of the administrator’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.
When seeking approval, the administrator should explain, for each category of cost, the basis on which the charge is being made. If the administrator 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 administrator is replaced.
depreciation and finance charges.
8. Exceeding the amount set out in the fees estimate
Remuneration must not exceed the fees estimate without approval by the body which fixed the original basis of the remuneration. The request for approval must specify –
9 Progress reports and requests for further information
9.1 The administrator is required to send a progress report to creditors at 6-monthly intervals. The report must include:
details of the basis fixed for the remuneration of the administrator (or if not fixed at the date of the report, the steps taken during the period of the report to fix it); if the basis has been fixed, the remuneration charged during the period of the report, irrespective of whether it was actually paid during that period (except where it is fixed as a set amount, in which case it may be shown as that amount without any apportionment for the period of the report);
if the report is the first to be made after the basis has been fixed, the remuneration charged during the periods covered by the previous reports, together with a description of the work done during those periods, irrespective of whether payment was actually made during the period of the report;
a statement of the expenses incurred by the administrator during the period of the report, irrespective of whether payment was actually made during that period; where appropriate, a statement –
that the remuneration anticipated to be charged is likely to exceed the fees estimate or any approval given for remuneration exceeding the estimate; that expenses incurred or anticipated to be incurred are likely to exceed, or have exceeded, the details given to the creditors prior to the determination of the basis of remuneration; and
the reason for that excess.
the remuneration anticipated to be charged is likely to exceed the fees estimate or any approval given for remuneration exceeding the estimate;
the expenses incurred or anticipated to be incurred are likely to exceed, or have exceeded, the details given to the creditors prior to the determination of the basis of remuneration; and
the reasons for that excess;
the date of approval of any pre-administration costs and the amount approved; a statement of the creditors’ rights to request further information, as explained in paragraph 8.2, and their right to challenge the administrator’s remuneration and expenses.
expected to lead to violence against any person, or
in which case he must give the reasons for not providing the information.
Any creditor may apply to the court within 21 days of the administrator’s refusal to provide the requested information, or the expiry of the 14 days time limit for the provision of the information.
10. Provision of information – additional requirements
The administrator must provide certain information about time spent on a case, free of charge, upon request by any creditor, director or shareholder of the company.
The information which must be provided is –
The period for which the information must be provided is the period from appointment to the end of the most recent period of six months reckoned from the date of the administrator’s appointment, or where he has vacated office, the date that he vacated office.
The information must be provided within 28 days of receipt of the request by the administrator, and requests must be made within two years from vacation of office.
11 What if a creditor is dissatisfied?
12 What if the administrator is dissatisfied?
12.1 If the administrator considers that the remuneration fixed by the creditors’ committee 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 committee or the creditors 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 creditors’ committee and the committee may nominate one or more of its members to appear or be represented on the application. If there is no committee, the administrator’s notice of his application must be sent to such of the company’s 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 as an expense of the administration.
13 Other matters relating to remuneration
13.1 Where there are joint administrators it is for them to agree between themselves how the remuneration payable should be apportioned. Any dispute arising between them may be referred to the court, the creditors’ committee or a meeting of creditors.
14. Effective date
This guide applies where a company enters administration on or after 1 October 2015.