In this post, I add to my previous list of fees-related gripes and cover some issues with the new closure processes\u2026 and, as the end of the list is nearing, if anyone has any other gripes they want me to add to the list, please do drop me a line (because, between you and me, I’m struggling to come up with 50!)<\/p>\n
On the topic of fees, I think that my last list and these additions demonstrate how madly intricate the statutory requirements are, especially for fees in Administrations and for fees based on time costs.\u00a0 Is it any wonder that so many fee non-compliances arise?\u00a0 And more than a few are treated by the RPBs as \u201cunauthorised fees\u201d issues, thus attracting the risks of fines and other sanctions.\u00a0 This seems unfair as many trip-ups only occur because the Rules are such a jungle.\u00a0 There must be a simpler way, mustn\u2019t there?<\/p>\n
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A Few More Fees-Related Gripes<\/u><\/strong><\/p>\n I appreciate that the fees Rules were drafted in the expectation that office holders would seek approval for the fee basis up-front (although how the drafters believed that IPs would be able to put together a realistic, case-specific, fees estimate on Day 1, I don\u2019t know).\u00a0 However, I think the Rules should have been designed to accommodate the possibility that fee-approval would be sought after an IP has been on the case for some time.\u00a0 After all, the fact that Administrators\u2019 Proposals must address how the company\u2019s affairs have been managed since appointment and <\/em>the proposed <\/em>fee basis indicates that even the drafters envisaged some occasions when work will have been done before approval is sought, not to mention all the tasks demanded of every office holder swiftly on appointment.<\/p>\n My problem is that the Rules\u2019 language is all prospective<\/em>: the fees estimate\/proposal must provide \u201cdetails of the work the IP and the IP\u2019s staff propose <\/em>to undertake\u201d (Rs1.2 and 18.16(7)) and the IP must provide \u201cdetails of the expenses the office-holder considers will be, <\/em>or are likely to be <\/em>incurred\u201d (Rs18.16(4) and (7)).\u00a0 I think that we\u2019ve all interpreted this to mean that, if time or expenses have already been incurred, these need to be explained also \u2013 and indeed SIP9 has plugged this statutory gap \u2013 but it is a shame that the Service did not see the 2016 Rules as an opportunity to fix the flaws in the 2015 fees Rules, which had been so hastily pushed out.<\/p>\n <\/p>\n The Rules don\u2019t seem to have been written with any expectation that creditors will want to agree fees on a time costs basis subject to a cap different from that set by the fees estimate.<\/p>\n Firstly, although the Oct-15 Rules changed the fee basis to \u201cby reference to the time\u2026 as set out in the fees estimate\u201d (e.g. old R4.127(2)(b)), those final words were omitted from new R18.16(2)(b), so now creditors are asked simply to approve a decision that fees be based on time costs.<\/p>\n Thus, if creditors want to cap those fees at anything other than the fees estimate, they have to modify the proposed decision unilaterally\u2026 which isn\u2019t really catered for in decisions by correspondence. In effect, the creditor is proposing their own decision, which the Rules strictly provide for as a \u201crequisitioned decision\u201d (R15.18), but of course office holders cut to the chase by accepting the creditor\u2019s cap if their vote is conclusive.\u00a0 The alternative is to count their vote as a rejection of the office holder\u2019s proposed decision and start again with a new decision procedure.<\/p>\n But then how do you frame a request to creditors to increase <\/em>this kind of cap?\u00a0 The process for \u201cexceeding the fees estimate\u201d is set down in R18.30.\u00a0 Let\u2019s say that your original fees estimate was \u00a350,000 and the creditors agreed a cap of \u00a330,000.\u00a0 If you want to ask them to reconsider whether you can take up to \u00a340,000, R18.30 doesn\u2019t work.\u00a0 You\u2019re not asking to exceed <\/em>the fees estimate, you\u2019re still looking to be within your original fees estimate.<\/p>\n R18.29 also doesn\u2019t work here: the fee basis <\/em>has been agreed as time costs, so you\u2019re not asking creditors to change the basis (and there may be no \u201cmaterial and substantial change in circumstances\u201d from that which you\u2019d originally estimated when you\u2019d quoted \u00a350,000).\u00a0 It seems to me that you\u2019re asking creditors a whole different kind of question \u2013 to lift their arbitrary cap \u2013 which is not provided for at all in the Rules.<\/p>\n <\/p>\n Commonly, IPs will propose a fees decision to creditors and receive no response at all.\u00a0 Invariably, they will try again, often emphasising to creditors that, if no one votes, they may take it to court, thus increasing the costs demanded of the insolvent estate quite substantially.<\/p>\n But what if your original fees estimate was for \u00a330,000 and then, when you go back for a second attempt some time later, you think that \u00a350,000 is more realistic?\u00a0 Or maybe your first fees estimate was proposed on a milestone basis, say \u00a330,000 for year 1, and then you go to creditors at the start of year 2 with a fees estimate for \u00a350,000 for two years?<\/p>\n Do you look to R18.30 on the basis that this is an excess fee request?\u00a0 After all, you are <\/em>looking to exceed your original estimate, so the scenario seems to fit R18.30(1).\u00a0 However, read on to R18.30(2) and a different picture emerges: R18.30(2) instructs office holders to seek approval from the party that \u201cfixed the basis\u201d, so if no basis has been fixed, then R18.30 cannot be the solution.<\/p>\n So is your original fees estimate completely irrelevant then?\u00a0 Do you simply start again with a new fees estimate?\u00a0 Well, if you\u2019re issuing a progress report before the creditors agree the basis, the original fees estimate is not completely irrelevant: R18.4(1)(e)(i) states that you must report whether you are \u201clikely to exceed the fees estimate under R18.16(4)\u201d.\u00a0 That Rule refers simply to providing the information to creditors.\u00a0 It does not say that that fees estimate must have been approved.\u00a0 So at the very least, you would explain in your progress report why your original \u00a330,000 was inadequate, even though you might also be providing a new fees estimate for \u00a350,000.<\/p>\n \u00a0<\/strong><\/p>\n This question proved contentious long before the 2016 Rules: if an Administrator has achieved fee approval under R18.18(4) (as it is now), where they have issued Proposals with a Para 52(1)(b) statement, is this approval still sufficient if the circumstances of the case change and it transpires that the Para 52(1)(b) statement is no longer appropriate? And conversely, if an Administrator issued Proposals with no Para 52(1)(b) statement, is the unsecured creditors\u2019 approval of fees still sufficient in the event that it now appears that there will not be a dividend to unsecureds (except by means of the prescribed part)?<\/p>\n Personally, I believe that technically the approvals are still valid.\u00a0 R18.18(4) refers specifically to making a Para 52(1)(b) statement: if that statement has been made, it\u2019s been made; the fact that the statement may no longer be appropriate does not change the fact that it was made (although issuing revised Proposals may overcome this\u2026 but how many Administrators ever issue revised Proposals..?).\u00a0 Also, R18.33 provides that, if the Administrator asks to change the fee basis, amount etc. or for approval to fees in excess of an estimate, the Administrator must go to the unsecureds if the Para 52(1)(b) statement is no longer relevant.\u00a0 Surely, if it were the case that Administrators needed to go to unsecureds (or indeed issue revised Proposals) every time a Para 52(1)(b) statement were no longer relevant, i.e. to ratify a fees decision previously made by secureds\/prefs, the Rules would similarly demand this.<\/p>\n However, while I think that this is the technical <\/em>position, I have sympathy with IPs who decide to go to other creditors for fee approval even though strictly-speaking it does not seem as though this is required by the Rules.\u00a0 Although clearly it costs money to seek decisions from creditors, I don\u2019t think anyone will challenge an IP who has chosen to ensure that all relevant creditor classes are in agreement.\u00a0 This would also help counteract any challenge that the Proposals had made a Para 52(1)(b) statement inappropriately, thus disenfranchising the unsecureds from having a say on the Administrators\u2019 fees.<\/p>\n <\/p>\n But what is the technical <\/em>position for an Administrator who has made a Para 52(1)(b) statement, thought that they would not be making a distribution to prefs, but then the outcome changed so that a distribution became likely?<\/p>\n I think the technical position for this scenario does create a problem.\u00a0 R18.18(4) states that the basis is fixed: (i) by the secured creditors and (ii) if the Administrator has made or intends to make <\/em>a distribution to prefs, then also by the prefs (via a decision procedure).\u00a0 It seems to me that overnight the question of whether the Administrator\u2019s fees have been approved or not changes.\u00a0 Originally, the Administrator thought that they only needed secured creditors\u2019 approval, so they drew fees on that basis.\u00a0 But then, as soon as they intend to make a distribution to prefs, they have no longer complied with R18.18(4).\u00a0 Although it would seem mighty unfair for anyone to view the Administrator\u2019s fees drawn up to that point as unauthorised, it certainly seems to me that the Administrator must take immediate steps to seek preferential creditors\u2019 approval.<\/p>\n <\/p>\n Closure Processes<\/u><\/strong><\/p>\n There is a distinct difference between the MVL closure process and those for CVLs, BKYs and compulsory liquidations (\u201cWUCs\u201d).\u00a0 In an MVL, the liquidator issues a \u201cproposed final account\u201d (R5.9) and then, often 8 weeks\u2019 later, the \u201cfinal account\u201d is issued along with a notice that the company\u2019s affairs are fully wound up (R5.10).\u00a0 However, in a CVL, before the 8-week period begins <\/em>the liquidator issues a final account with a notice that the company\u2019s affairs are fully wound up (R6.28).\u00a0 BKYs and WUCs follow this CVL model.<\/p>\n I have no idea why there should be these differences in the two main processes.\u00a0 But what I do know is that it causes confusion on what a final account should look like\u2026 even for Companies House staff.<\/p>\n R6.28(1) states that the CVL final account delivered to creditors at the start<\/em> of the 8-week process is the one required under S106(1) \u2013 not a draft or a proposed version of the final account \u2013 and it must be accompanied by the notice confirming that the affairs are fully wound up.\u00a0 Therefore, it is clear to me that this final account is pretty-much set in stone at this point.\u00a0 The final account date is fixed as at the date it is issued to creditors and it does not get changed when the time comes to deliver a copy<\/em> of the final account to the Registrar of Companies at the end of the 8 weeks (S106(3)).<\/p>\n I don\u2019t think<\/em> that this is a misinterpretation\u2026 but I have doubted myself, not least as some IPs have complained to me over the last couple of years that Companies House has rejected their final accounts, requiring them to be re-dated to the \u201cfinal meeting\u201d or \u201cclosure\u201d date.\u00a0 I have asked Companies House twice to explain to me why they believe the final account should be re-dated\u2026 and both times Companies House conceded that there is no such requirement.\u00a0 Thank you, Companies House, but would it be possible for you to avoid reverting to 1986 habits again so that, over time, we might all settle into a routine of complying with the Rules?!<\/p>\n <\/p>\n I explained in Gripe no. 4 that R10.87(3)(f) seems to contain an anomaly.\u00a0 It states that the final notice to creditors should state that the trustee will vacate office (and (g) be released, if no creditors have objected) when the trustee files the requisite notice with the court, but there seems to be no Section\/Rule that actually requires <\/em>a notice to be filed with the court.<\/p>\n I\u2019m repeating this gripe here because others have been puzzled over the filing requirements when closing BKYs, especially in debtor-application cases where of course there is no court file.\u00a0 Quite frankly, I don\u2019t think any of us would care, if it were not for the fact that the trustee\u2019s release is dependent on filing a final notice with \u201cthe prescribed person\u201d (S298(8), S299(3)(d)).\u00a0 As I mentioned previously, the person at the Insolvency Service with whom I\u2019d been communicating seemed to express the view that \u201cthe prescribed person\u201d is the court in creditor-petition (and old debtor-petition) cases and is the OR in debtor-application cases, but my attempts to get them to be more categoric in their response (and to explain with reference to the Rules how they reach this conclusion) have been unsuccessful to date.<\/p>\n It is unfair that the Act\/Rules deal so unsatisfactorily with the trustee\u2019s release and it makes me wonder if, to be certain, it would be beneficial to ask the Secretary of State to confirm one\u2019s release in debtor-application cases where filing a notice at the court seems insensible.<\/p>\n <\/p>\n When I explain to clients how I see the closure process for CVLs, BKYs and WUCs working, I sometimes hear the retort: so, you\u2019re telling to me that I have to get everything <\/em>finished before I issue my final account\/report at the start of the 8 weeks, are you?\u00a0 But how do I get paid for being in office over that period?<\/p>\n It is true that, under the old Rules, it was possible for IPs to factor the costs to close into their draft <\/em>final report so that they could incur the time costs during that 8-week period and draw the fees (and deal with the final VAT reclaim) before vacating office and finalising their final report.\u00a0 Under the new process, this looks impossible: in order to issue a notice confirming that the affairs have been fully wound up, it seems to me that at that point the affairs must have been fully wound up \ud83d\ude09<\/p>\n Most IPs are prepared to forgo the final costs to close a case.\u00a0 Let\u2019s face it, how many cases have enough funds to pay IPs anywhere near <\/em>full recovery of their costs anyway?\u00a0 But, I had to agree with my client who was disgruntled at the prospect of having to work for free from the point of issuing the final report: it does seem unfair.\u00a0 But there is a simple solution: why not ask creditors to consider approving your fees to close a case as a set amount?\u00a0 You could propose this at the same time as seeking approval for fees on a time costs basis for all other aspects of the case.\u00a0 If your closing fees were approved as a set amount, you could invoice and draw those fees long before issuing your final account\/report\u2026 and this way you could also get the VAT all wrapped up in good time as well.<\/p>\n <\/p>\n Over the years, there have been occasions when an IP has wanted to stop a closure process.\u00a0 It\u2019s true that, under the old Rules, there were no provisions cancelling <\/em>a final meeting.\u00a0 But under the old Rules, it was possible to re-start the closure process for example if your draft final report turned out to be flawed; in fact, the old Rules required <\/em>you to re-issue a draft final report and re-advertise for a new final meeting.<\/p>\n But as the 2016 Rules for CVLs, BKYs and WUCs only require you to issue a final account\/report and then wait 8 weeks for creditors to take any action they see fit, there seems to be no way to stop this process once it has begun.\u00a0 In fact, even if a creditor objects to the office holder\u2019s release, this does not stop the IP vacating office at the 8 weeks; it simply means that, after vacating office, the IP needs to apply to the Secretary of State for release.\u00a0 The only actions that stop (or rather postpone) a closure process are a creditor exercising their statutory rights to request information or challenge fees or expenses.<\/p>\n","protected":false},"excerpt":{"rendered":" In this post, I add to my previous list of fees-related gripes and cover some issues with the new closure processes\u2026 and, as the end of the list is nearing, if anyone has any other gripes they want me to … Continue reading \n
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