{"id":340,"date":"2019-04-05T10:07:11","date_gmt":"2019-04-05T10:07:11","guid":{"rendered":"http:\/\/thecompliancealliance.co.uk\/blog\/?p=340"},"modified":"2019-04-05T10:07:11","modified_gmt":"2019-04-05T10:07:11","slug":"the-rules-fees","status":"publish","type":"post","link":"https:\/\/thecompliancealliance.co.uk\/blog\/2016-rules\/the-rules-fees\/","title":{"rendered":"50 Things I Hate about the Rules \u2013 Part 2: Fees"},"content":{"rendered":"

New Rules, Old Problems<\/strong><\/p>\n

Regrettably, most of the things I hate in this category are the Rules\u2019 ambiguities, so I apologise in advance for failing to provide you with answers.\u00a0 Nothing is as licence-threatening as fees failures, so it is particularly unfair that the Rules aren\u2019t written in a way that helps us to comply.<\/p>\n

In addition, most of these bug-bears were issues under the 1986 Rules.\u00a0 What a missed opportunity the InsS had to fix them in 2017!\u00a0 Jo and I had met with InsS staff and tried to attract their attention to many of these issues.\u00a0 Their answer was that the 2016 Rules were not intended to change the status quo and that, as IPs had evidently coped with the 1986 Rules, surely they could continue to cope!<\/p>\n

 <\/p>\n

    \n
  1. Fee Approval at S100 Meetings<\/strong><\/li>\n<\/ol>\n

    In December last year, out of the blue, I heard an ICAEW webinar raise questions about the validity of fee resolutions passed at S100 virtual meetings.\u00a0 The speaker said that she was \u201cflag[ging] the risks\u201d only \u2013 and, to be fair, it did seem that she was highlighting that most of the risks lay in seeking fee approval via S100-concurrent decision procedures other than at a meeting (about which I have blogged before) \u2013 but it worried us enough to alert our clients to the voiced concern.<\/p>\n

    The speaker\u2019s concern related to the absence of any Rule empowering the director\/convener of a S100 meeting to propose a fee-related resolution.\u00a0 Indeed, such an explicit power is absent, and the drafters of the 2016 Rules saw fit not to reproduce Rs4.51(1) and 4.53, which had set out the resolutions that could be passed at first liquidation meetings \u2013 thanks guys!\u00a0 Presumably, they believed that it was unnecessary to define what resolutions could be proposed at meetings, because I cannot believe that the Insolvency Service wished S100 meetings to be handled any differently from S98s (other than the obvious shift from physical to virtual meetings), especially in light of the fact that they introduced the ability for proposed <\/em>liquidators to issue fee-related information pre-appointment (R18.16(10)) \u2013 why would they do that if the fees could not be approved at the S100 meeting?<\/p>\n

    In light of the webinar speaker\u2019s observations, if the Rules are considered inadequate to allow a director\u2019s notice of S100 meeting to set out a proposed resolution on the liquidator\u2019s fees, then it seems to me that the argument applies equally to resolutions seeking approval of a pre-CVL fee\u2026 and I suspect there may be hundreds of IPs who have drawn fees, either pre or post, on the basis of a S100 meeting resolution.<\/p>\n

     <\/p>\n

      \n
    1. Pre-CVL Fees<\/strong><\/li>\n<\/ol>\n

      Over the last couple of years, RPB monitors have been taking issue with pre-CVL fees that have included payment for work that does not strictly meet the Rules\u2019 definition, where those fees are paid for out of the liquidation estate after appointment.<\/p>\n

      I think it is generally accepted now that, ok, R6.7 does not provide that the costs relating to advising the company and dealing with the members\u2019 resolutions can be paid from the estate after appointment.\u00a0 In practice, most IPs have reacted to this by, in effect, doing these tasks for free or by seeking up-front fees from the company\/directors.<\/p>\n

      But the Rules\u2019 restriction seems unnecessarily restrictive: why should these tasks, especially dealing with the members\u2019 winding-up resolution, not be paid for from the estate?\u00a0 After all, it\u2019s not as if a S100 CVL can be started without <\/em>a members\u2019 resolution.\u00a0 Why couldn\u2019t R6.7 mirror the pre-Administration costs\u2019 definition, which refers to work carried on \u201cwith a view to\u201d the company entering Administration?<\/p>\n

       <\/p>\n

        \n
      1. The 18-month Rule<\/strong><\/li>\n<\/ol>\n

        The long-running debate over the 1986 Rule has continued, albeit with a subtle change.\u00a0 The question has always been: if fees are not fixed by creditors in the first 18 months of an appointment, can they be fixed by creditors thereafter?<\/p>\n

        Firstly, in relation to ADM, CVL and MVL, those in the \u201cno\u201d camp point to R18.23(1), which states that, if the basis of fees is not fixed by creditors (etc.), then the office holder \u201cmust\u201d apply to court for it to be fixed\u2026 and, as the office holder can only make such application within 18 months, then this time limit applies similarly to creditors\u2019 approval, because it would be impossible to deal with the consequences of a creditors\u2019 failure to fix fees after 18 months.<\/p>\n

        However, those in the \u201cyes\u201d camp (in which I sit) do not see this as an issue: true, if creditors do not approve fees in month 19, then the office holder cannot go to court, but why does this somehow invalidate a creditors\u2019 decision to <\/em>fix fees in month 19?\u00a0 In my view, R18.23(1) is not offended, because the scenario does not arise.\u00a0 The \u201cmust\u201d in R18.23(1) is clearly not mandatory, because, for instance, surely no one is suggesting that an office holder who decides to vacate office without drawing any fees \u201cmust\u201d first go to court to seek fee approval.\u00a0 Similarly, R18.23(1) seems to be triggered as soon as an IP takes office: on Day 1, the basis of their fees is usually not fixed, but surely no one is suggesting that this means the IP \u201cmust\u201d go to court.<\/p>\n

        I think that another reason for sitting in the \u201cyes\u201d camp goes to the heart of creditor engagement in insolvency processes: why should<\/em> creditors lose the power to decide the basis of fees after 18 months?<\/p>\n

        Also compare the position for compulsory liquidators and trustees in bankruptcy: R18.22 means that, if the creditors do not approve the basis of fees within 18 months, the office holder is entitled to Schedule 11 scale rate fees.\u00a0 So does this mean that the office holder has no choice but to rely on Scale Rate fees after 18 months?\u00a0 I think (but I could be wrong) that, as R18.29(2)(e) specifically refers to fees \u201cdetermined under R18.22\u201d, this enables the office holder to seek a review of that fee basis after 18 months, provided there is \u201ca material and substantial change in circumstances which were taken into account when fixing\u201d the fees under R18.22 (which perhaps can be met, because the only factor taken into account in the statutory fixing of R18.22 fees was the creditors\u2019 silence, which hopefully can be changed by proposing a new decision procedure).<\/p>\n

        Thus, in bankruptcies and compulsories, there seems to be a fairly simple way to seek creditors\u2019 approval to decide on the basis of fees after 18 months, but the \u201cno\u201d camp does not think this works for other case types\u2026 but why as a matter of principle there should be this difference, I do not understand.<\/p>\n

         <\/p>\n

          \n
        1. Changing the Fee Basis\u2026 or Quantum..?<\/strong><\/li>\n<\/ol>\n

          We all know that the Rules allow fees in excess of a time costs fees estimate to be approved.\u00a0 But what do you do if you want creditors to revisit fees based on a set amount or percentage?\u00a0 It would seem that the fixed\/% equivalent of \u201cexceeding the fee estimate\u201d is at R18.29.\u00a0 As mentioned above, this enables an office holder to ask creditors to \u201creview\u201d the fee basis where there is a material and substantial change.\u00a0 However, it may not be as useful as it at first appears.<\/p>\n

          R18.29(1) states that the office holder \u201cmay request that the basis <\/em>be changed\u201d.\u00a0 The bases are set out in R18.16(2), i.e. time costs, percentage and\/or a set amount.\u00a0 R18.29(1) does not state that the rate or amount<\/em> of the fee may be changed.<\/p>\n

          But surely that\u2019s what it means, doesn\u2019t it?\u00a0 Not necessarily.\u00a0 Compare, for example, R18.25, which refers to an office holder asking \u201cfor an increase in the rate or amount of remuneration or a change in the basis\u201d.\u00a0 If R18.29 were intended to encompass also rate and amount changes, wouldn\u2019t it have simply repeated this phrase?<\/p>\n

          Ok, so if we can\u2019t use R18.29, then can we use any of the other Rules, e.g. R18.25?\u00a0 There are a number of Rules providing for a variety of routes to amending the fee in a variety of situations\u2026 but none (except for the time costs excess Rule) deal with the most common scenario where the general body of creditors has approved the fee and you want to be able to ask the same body to approve a revised fee.<\/p>\n

          This does seem nonsensical, especially if you want to propose fees on a \u201cmilestone\u201d fixed fee basis.\u00a0 Surely you should simply be able to tell creditors, say, what you\u2019re going to do for Year 1 and how much it will cost and then revert later regarding Year 2.\u00a0 After all, isn\u2019t that what the Oct-15 Rule changes were all about?<\/p>\n

          It may be for this reason that I understand some RPB monitors (and InsS staff) see no issue with using R18.29 to change the rate or amount of a fixed\/% fee\u2026 but I wish the Rules would help us out!<\/p>\n

           <\/p>\n

            \n
          1. Excess Fee Requests<\/strong><\/li>\n<\/ol>\n

            R18.30 sets out what must be done to seek approval for fees in excess of an approved fee estimate.\u00a0 Well, sort of\u2026\u00a0 What I have trouble with is the vague \u201c\u2026and rules 18.16 to 18.23 apply as appropriate\u201d (R18.30(2)).<\/p>\n

            For example, do you need to provide refreshed details of expenses to be incurred (R18.16(4)(b)), even though it would seem sensible to have listed this requirement in R18.30 along with the menu of other items listed?\u00a0 It seems to me unlikely to have been the intention, as a refreshed list of expenses does not fit with R18.4(1)(e)(ii), which requires progress reports to relate back to the original<\/em> expenses estimate.<\/p>\n

            And does R18.16(6) mean that the \u201cexcess fee\u201d information needs to be issued to all creditors prior to the decision in the same way that the initial fees estimate was, even if there is a Committee?\u00a0 (See Gripe 21 below.)<\/p>\n

            And trying to capture Rs18.22 and 18.23 with this vague reference seems to me particularly lazy, given that those Rules require fairly substantial distorting to get them to squeeze into an excess fee request scenario, if R18.22 has any application to excess fee requests at all.<\/p>\n

             <\/p>\n

              \n
            1. Who gets the information?<\/strong><\/li>\n<\/ol>\n

              So yes: R18.16(6) requires the office holder to \u201cdeliver to the creditors <\/em>the [fee-related information] before the determination of\u201d the fee basis is fixed.\u00a0 Who are \u201cthe creditors\u201d?\u00a0 Are they all <\/em>the creditors or did the drafter mean: the creditors who have the responsibility under the Rules to decide on the fees?<\/p>\n

              Here are a couple of scenarios where it matters:<\/p>\n

                \n
              1. Administrators\u2019 Proposals contain a Para 52(1)(b) statement and so the fees are to be approved by the secured creditors\u2026 and perhaps also the prefs<\/li>\n
              2. A Creditors\u2019\/Liquidation Committee is in operation<\/li>\n<\/ol>\n

                If <\/em>the purpose of R18.16(6) was to enable all creditors who may be able to interject in the approval process to have the information, then I can understand why it may mean all <\/em>creditors in scenario (a), because unsecured creditors may be able to form a Committee (although it seems to me that the non-prefs would need to requisition a decision procedure in order to form one) and then the Committee would take the decision away from the secureds\/prefs.<\/p>\n

                However, what purpose is served by all creditors receiving the information where there is<\/em> a Committee?\u00a0 The time for creditors to express dissatisfaction over fees in this scenario is within 8 weeks of receiving a progress report, not before the Committee decides on the fees.<\/p>\n

                But, setting logical arguments aside, it seems that R18.16(6) requires all creditors to receive the information before the fee decision is made, whether or not they have any power over the decision.<\/p>\n

                 <\/p>\n

                  \n
                1. All <\/em>secured creditors?<\/strong><\/li>\n<\/ol>\n

                  I had understood that the Enterprise Act\u2019s design for an Administrator\u2019s fee-approval was to ensure that the creditors whose recovery prospects were eaten away by the fees were the creditors who had the power to decide on the Administrator\u2019s fees.<\/p>\n

                  Clearly, a Committee\u2019s veto power crushes that idea for a start, especially in Para 52(1)(b) cases.\u00a0 Also, in those cases, I confess that I have struggled to understand why all <\/em>secured creditors must approve the fees.\u00a0 Where there are subordinate floating charge creditors with absolutely zero chance of seeing any recovery from the assets even if the Administrator were to work for free, why do they need to approve the fees?\u00a0 And try getting those creditors to engage!<\/p>\n

                   <\/p>\n

                    \n
                  1. What about paid <\/em>creditors?<\/strong><\/li>\n<\/ol>\n

                    This question has been rumbling on for many years: if a creditor\u2019s claim is discharged post-appointment, should they continue to be treated as a creditor?<\/p>\n

                    I understand the general \u201cyes\u201d answer: a creditor is treated as someone with a debt as at the relevant date and a post-appointment payment does not change the fact that the creditor had <\/em>a debt at the relevant date, so the creditor remains a creditor even if their claim is settled<\/p>\n

                    In view of the apparent objective of the fee-approval process (and a great deal of case law), it does seem inappropriate to enable a \u201ccreditor\u201d who no longer has an interest in the process to influence it.\u00a0 In addition, I am not persuaded that the technical argument stacks up.<\/p>\n

                    Firstly, let\u2019s look at the Act\u2019s definition of creditor for personal insolvencies: S383(1) defines a creditor as someone \u201cto whom any of the bankruptcy debts is <\/em>owed\u201d, so this seems to apply only as long as the debt is owed, not after it has been settled.<\/p>\n

                    It would be odd if a creditor were defined differently in corporate insolvency, but unfortunately we don\u2019t have such a tidy definition.\u00a0 There is a definition of \u201csecured creditor\u201d in S248, which also seems temporary: it defines them as a creditor \u201cwho holds <\/em>in respect of his debt a security\u2026\u201d.\u00a0 Thus, again, it seems to me that this criterion is only met as long as the security is held.<\/p>\n

                    But, over the years, my conversations with various RPB and InsS people have led me to believe that, even if a creditor \u2013 especially a secured creditor in a Para 52(1)(b) Administration \u2013 is paid out in full post-appointment, IPs would do well to track down their approval for fees\u2026 just in case.\u00a0 But also on the flip-side, I suspect that it would be frowned upon (if not seriously questioned) if an office holder relied<\/em> on a creditor\u2019s approval where they were not a creditor at the time of their decision.\u00a0 You\u2019re damned if you do, damned if you don\u2019t.<\/p>\n

                     <\/p>\n

                      \n
                    1. What about paid preferential <\/em>creditors?<\/strong><\/li>\n<\/ol>\n

                      I know of one compliance manager (and I\u2019m sure there are others) who strongly maintains that pref creditors must still be invited to vote on decisions put to pref creditors even when their pref elements have been paid in full.<\/p>\n

                      In addition to the points made above, we have R15.11, which states in the table that creditors whose claims “have subsequently been paid in full\u201d do not receive notice of decision procedures in Administrations.\u00a0 You might think: ah, but usually pref creditors also have non-pref claims, so they won\u2019t have been \u201cpaid in full\u201d.\u00a0 Ok, but R15.31(1)(a) states that creditors’ values for voting purposes in Administrations are their claims less any payments made to them after the Administration began. \u00a0I think it is generally accepted (although admittedly the Rules don\u2019t actually say<\/em> so) that, to determine a decision put to pref creditors, their value for voting purposes should be only their pref<\/em> element\u2026 so, if prefs have been paid in full, their voting value would be nil… so how would you achieve a decision put to paid pref creditors?<\/p>\n

                      But if you take it that the intention of Rs15.11 and 15.31(1)(a) was to eliminate the need to canvass paid pref creditors in Para 52(1)(b) Administrations (which is certainly how the InsS answered on their pre-Rules blog), it gets a bit tricky when looking at excess fee requests\u2026<\/p>\n

                       <\/p>\n

                        \n
                      1. What about paid pref creditors and excess fee requests?<\/strong><\/li>\n<\/ol>\n

                        R18.30(2)(b) states that excess fee requests must be directed to the class of creditors that originally fixed the fee basis.\u00a0 For Para 52(1)(b) cases, this is varied by R18.33, which states that, if, at the time of the request, a non-prescribed part dividend is now likely to be paid, effectively the Para 52(1)(b) route is closed off so that unsecured creditors get to decide.<\/p>\n

                        But what if you still think it is a Para 52(1)(b) case and the prefs have been paid in full?\u00a0 It is impossible to follow R18.30(2)(b) and achieve a pref decision, isn\u2019t it?<\/p>\n

                        The moral of the story, I think, is to make sure that you don\u2019t pay creditors in full until you have dealt with all your fee requests, which to be fair is what many Trustees in Bankruptcy have been accustomed to observing for years.<\/p>\n

                         <\/p>\n

                          \n
                        1. Fee Bases for Para 83 Liquidators<\/strong><\/li>\n<\/ol>\n

                          R18.20(4) states that the fee basis fixed for the Administrator \u201cis treated as having been fixed\u201d for the Para 83 Liquidator, provided that they are the same person.\u00a0 This seems fairly straightforward for fees fixed on time costs and it can work for percentage fees, but what about fees as a set amount?<\/p>\n

                          Is it the case, as per Gripe 19, that the basis <\/em>has been fixed as a set amount, but the quantum <\/em>isn\u2019t treated as having been fixed?\u00a0 First, let me take the approach mentioned at Gripe 19 that I understand is fairly widely-held amongst regulator staff, which is that \u201cbasis\u201d should be read as meaning the basis and the quantum.\u00a0 This would lead to a conclusion that, say, creditors approved the Administrator\u2019s fees at \u00a350K all-in, then the subsequent Liquidator\u2019s fees would also be fixed at another \u00a350K.\u00a0 This cannot be right, can it?<\/p>\n

                          The alternative is that \u201cbasis\u201d means<\/em> basis, so the Liquidator\u2019s fees would be fixed as a set amount (which they could always ask to be changed under R18.29), but the quantum of that set amount would not.\u00a0 In this case, presumably there would be no problem in the liquidator reverting to creditors to fix the quantum of their set-amount fee.\u00a0 This would be similar to the position of a liquidator on a time costs basis where the Administrator had not factored in any fee estimate for the liquidation: in my view, the liquidator effectively begins life with a time costs basis with a nil fee estimate, so the next step would be to ask creditors to approve an \u201cexcess\u201d fee request.<\/p>\n

                           <\/p>\n

                            \n
                          1. What to do if Creditors won\u2019t Engage<\/strong><\/li>\n<\/ol>\n

                            Up and down the country, I understand that IPs are having problems extracting votes from creditors.\u00a0 The consequence is that more and more applications are being made to court for fee approvals.\u00a0 This should not be the direction of travel.<\/p>\n

                            This problem cannot be put entirely at the new Rules\u2019 door, but I think that the 2016 Rules have not helped.\u00a0 The plethora of documents and forms that accompany a fees-related decision procedure must be seriously off-putting for creditors (after all, it\u2019s off-putting for all of us to have to produce this stuff!).\u00a0 Also, this world\u2019s climate of making every second count does not encourage creditors to engage, especially if their prospects of recovery are nil or close to it.<\/p>\n

                            Of course, not every case of silence leads to a court application.\u00a0 Applications can be relatively costly animals and so where funds are thin on the ground, I\u2019m seeing IPs simply foregoing all hope of a fee and deciding to Bona Vacantia small balances and close the case.<\/p>\n

                            When the Oct-15 Rules were being considered, many people suggested a de minimis process for fees.\u00a0 Much like the OR\u2019s \u00a36,000 fee, could there not simply be a modest flat fee for IP office holders that requires no creditor approval?\u00a0 Most IPs would dance a jig if they could rely on a statutory fee of \u00a36,000, like the OR can!\u00a0 It wouldn\u2019t even need to be \u00a36,000 to help despatch a great deal of small-value insolvencies… and the costs of conducting the decision process could be saved.\u00a0 We all know the work that an IP has to put in to administer even the simplest of cases, including D-reports, progress and final reporting, not to mention the host of regulatory work keeping records and conducting reviews.\u00a0 If IPs cannot rely on being remunerated for this work in a large proportion of their cases without having to resort to court, then we will see more IPs leaving the profession.<\/p>\n

                             <\/p>\n","protected":false},"excerpt":{"rendered":"

                            New Rules, Old Problems Regrettably, most of the things I hate in this category are the Rules\u2019 ambiguities, so I apologise in advance for failing to provide you with answers.\u00a0 Nothing is as licence-threatening as fees failures, so it is … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[73],"tags":[78,133,28,60,24,33,117,81],"class_list":["post-340","post","type-post","status-publish","format-standard","hentry","category-2016-rules","tag-administrators-fees","tag-excess-fee-request","tag-fees","tag-insolvency-rules-2016","tag-ip-fees","tag-office-holders-fees","tag-s100-fees","tag-virtual-meeting"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p6i4jv-5u","_links":{"self":[{"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/posts\/340","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/comments?post=340"}],"version-history":[{"count":1,"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/posts\/340\/revisions"}],"predecessor-version":[{"id":341,"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/posts\/340\/revisions\/341"}],"wp:attachment":[{"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/media?parent=340"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/categories?post=340"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thecompliancealliance.co.uk\/blog\/wp-json\/wp\/v2\/tags?post=340"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}