AdminFees2015

A CREDITORS’ GUIDE TO ADMINISTRATORS’ FEES 2015
ENGLAND AND WALES

A Creditors' Guide to Administrators' Fees 2015
1 Introduction

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:

  • rescuing the company as a going concern, or
  • achieving a better result for the creditors as a whole than would be 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 IThe 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:

  • as a percentage of the value of the property which the administrator has to deal with,
  • by reference to the time properly given by the administrator and his staff in attending to matters arising in the administration, or
  • as a set amount.

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.

4.2 Advance information where remuneration not based on time costs

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.

4.3 Fees estimates where remuneration to be based on time costs

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 –
  • details of the work the administrator and his staff propose to undertake;
  • the hourly rate or rates the administrator and his staff propose to charge for each part of that work;
  • the time the administrator anticipates each part of that work will take;
  • whether the administrator anticipates it will be necessary to seek approval or further approval under the Rules; and
  • the reasons it will be necessary to seek such approval.

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.

4.4 Who fixes the remuneration

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:

  • the complexity (or otherwise) of the case;
  • any responsibility of an exceptional kind or degree which falls on the administrator;
  • the effectiveness with which the administrator appears to be carrying out, or to have carried out, his duties;
  • the value and

4.5 If there is no creditors’ committee, or the committee does not make the requisite determination (and provided the circumstances described in paragraph 4.3 do not apply), the administrator’s remuneration may be fixed by a resolution of a meeting of creditors having regard to the same matters as apply in the case of the committee. If the remuneration is not fixed in any of these ways, it will be fixed by the court on application by the administrator, but the administrator may not make such an application unless he has first tried to get his remuneration fixed by the committee or creditors as described above, and in any case not later than 18 months after his appointment.

4.6 There are special rules about creditors’ resolutions in cases where the administrator has stated in his proposals that the company has insufficient property to enable a distribution to be made to unsecured creditors except out of the reserved fund which may have to be set aside out of floating charge assets.

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 –

  • each secured creditor of the company; or
  • if the administrator has made or intends to make a distribution to preferential creditors –
- each secured creditor of the company; and
- preferential creditors whose debts amount to more than 50% of the preferential 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.

4.7 A resolution of creditors may be obtained by correspondence.

5. Review of remuneration

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.

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

6.1
Sometimes the administrator may need to seek approval for the payment of costs in connection with preparatory work incurred before the company went into administration but which remain unpaid. Such costs may relate to work done either by the administrator or by another insolvency practitioner. Disclosure of such costs must be included in the administrator’s proposals and should follow the principles and standards set out in section 7.

6.2 Where there is a creditors’ committee, it is for the committee to determine whether, and to what extent, such costs should be approved for payment. If there is no committee or the committee does not make the necessary determination, or if it does but the administrator, or other insolvency practitioner who has incurred preadministration costs, considers the amount agreed to be insufficient, approval may be given by a meeting of creditors. Where the circumstances described in paragraph 4.3 apply, the determination may be made by the same creditors as approve the administrator’s remuneration.

6.3The administrator must convene a meting of the committee or the creditors for the purposes of approving the payment of pre-administration costs if requested to do so by another insolvency practitioner who has incurred such costs. If there is no determination under these provisions, or if there is but the administrator or other insolvency practitioner considers the amount agreed to be insufficient, the administrator may apply to the court for a determination.

7. What information should be provided by the administrator?

7.1 General Principles

7.1.1 The administrator should provide those responsible for approving his remuneration with sufficient information to enable them to make an informed judgement about the reasonableness of the administrator’s request. The information should be presented in a manner which is transparent, consistent throughout the life of the case and useful to creditors, while being proportionate to the circumstances of the case.

7.1.2  The administrator should disclose
  • payments, remuneration and expenses arising from the administration paid to the administrator or his or her associates;
  • any business or personal relationships with parties responsible for approving the administrator’s remuneration or who provide services to the administrator in respect of the insolvency appointment where the relationship could give rise to a conflict of interest.

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.

7.1.3 Where the administrator sub-contracts out work that could otherwise be carried out by the administrator or his or her staff, this should be drawn to the attention of creditors with an explanation of why it is being done.

7.2 Key Issues

7.2.1 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 administrator anticipates will be done, and why that work is necessary;
  • the anticipated cost of that work, including any expenses expected to be incurred in connection with it;
  • whether it is anticipated that the work will provide a financial benefit to creditors, and if so what benefit (or if the work provided no direct financial benefit, but was required by statute);
  • the work actually done and why that work was necessary;
  • the actual costs of the work, including any expenses incurred in connection with it, as against any estimate provided;
  • whether the work has provided a financial benefit to creditors, and if so what 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.

7.2.2 When approval for a fixed amount or a percentage basis is sought, the administrator should explain why the basis requested is expected to produce a fair and reasonable reflection of the work that the administrator anticipates will be undertaken.

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.

7.4 Disbursements

7.4.1 Costs met by and reimbursed to the administrator in connection with the
administration will fall into two categories:
  • Category 1 disbursements: These are payments to independent third parties where there is specific expenditure directly referable to the administration.
  • Category 1 disbursements can be drawn without prior approval, although the administrator 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 administration but not to a payment to an independent third party. They may
  • include shared or allocated costs that may be incurred by the administrator or their firm, and that can be allocated to the administration on a proper and reasonable basis.
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.

7.4.2 The following are not permissible as disbursements:
  • a charge calculated as a percentage of remuneration;
  • an administration fee or charge additional to the administrator’s remuneration;
  • recovery of basic overhead costs such as office and equipment rental, 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 –
  • the reason why the administrator has exceeded, or is likely to exceed, the fees estimate;
  • the additional work the administrator has undertaken or proposes to undertake;
  • the hourly rate or rates the administrator proposes to charge for each part of that additional work;
  • the time that additional work has taken or the administrator anticipates that work will take;
  • whether the administrator anticipates that it will be necessary to seek further approval; and
  • the reasons it will be necessary to seek further approval.
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.
9.2 Within 21 days of receipt of a progress report a creditor may request the administrator to provide further information about the remuneration and expenses (other than preadministration costs) 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.

9.3 The administrator must provide the requested information within 14 days, unless he considers that:
  • the time and cost involved in preparing the information would be excessive, or
  • disclosure would be prejudicial to the conduct of the administration or might be expected to lead to violence against any person, or
  • the administrator is subject to an obligation of confidentiality in relation to the information requested,

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

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 total number of hours spent on the case by the administrator or staff assigned to the case;
  • for each grade of staff, the average hourly rate at which they are charged out;
  • the number of hours spent by each grade of staff in the relevant period. 
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?

11.1 If a creditor believes that the administrator’s remuneration is too high, the basis is inappropriate, or the expenses incurred by the administrator are in all the circumstances excessive he may, provided certain conditions are met, apply to the court.

11.2 Application may be made to the court by any secured creditor, or by any unsecured creditor provided at least 10 per cent in value of unsecured creditors (including himself) agree, or he has the permission of the court. Any such application must be made within 8 weeks of the applicant receiving the administrator’s progress report in which the charging of the remuneration or incurring of the expenses in question is first reported (see paragraph 8.1 above). If the court does not dismiss the application (which it may if it considers that insufficient cause is shown) the applicant must give the administrator a copy of the application and supporting evidence at least 14 days before the hearing.

11.3 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 be paid by the applicant and not as an expense of the administration.

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.

13.2 If the administrator is a solicitor and employs his own firm to act on behalf of the company, profit costs may not be paid unless authorised by the creditors’ committee, the creditors or the court.

13.3 If a new administrator is appointed in place of another, any determination, resolution or court order which was in effect immediately before the replacement continues to have effect in relation to the remuneration of the new administrator until a further determination, resolution or court order is made.

14 Effective date

This guide applies where a company enters administration on or after 1 October 2015.


Appendix

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:
  • the complexity of the case;
  • any exceptional responsibility falling on the administrator;
  • the liquidator’s effectiveness;
  • the value and nature of the property in question.

The information provided will depend upon the basis or bases being sought or reported upon, and the stage at which it is being provided. An overview might include:
  • an explanation of the nature, and the administrator’s own initial assessment, of the assignment (including the anticipated return to creditors) and the outcome (if known);
  • initial views on how the assignment was to be handled, including decisions on staffing or subcontracting and the appointment of advisers;
  • any significant aspects of the case, particularly those that affect the remuneration and cost expended;
  • the reasons for subsequent changes in strategy;
  • the steps taken to establish the views of creditors, particularly in relation to agreeing the strategy for the assignment, budgeting, and fee drawing;
  • any existing agreement about remuneration;
  • details of how other professionals, including subcontractors, were chosen, how they were contracted to be paid, and what steps have been taken to review their fees;
  • in a larger case, particularly if it involved trading, considerations about staffing and managing the assignment and how strategy was set and reviewed;
  • details of work undertaken during the period;
  • any additional value brought to the estate during the period, for which the administrator wishes to claim increased remuneration.

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 administrator’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:
  • details of work undertaken during the period, related to the table of time spent for the period;
  • an explanation of the grades of staff used to undertake the different tasks carried out and the reasons why it was appropriate for those grades to be used;
  • any comments on any figures in the summary of time spent accompanying the request the administrator wishes to make.
  • Time spent and charge-out summaries, in an appropriate format.
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:
  • Administration and planning
  • Investigations
  • Realisation of assets
  • Trading
  • Creditors
  • Any other case-specific matters

The following categories are suggested as a basis for analysis by grade of staff:

  • Partner
  • Manager
  • Other senior professionals
  • Assistants and support staff

The level of disclosure suggested above will not be appropriate in all cases, and considerations of proportionality will apply:
  • where cumulative time costs are, and are expected to be, less than £10,000 the administrator should, as a minimum, state the number of hours and average rate per hour and explain any unusual features of the case;
  • where cumulative time costs are, or are expected to be, between £10,000 and £50,000, a time and charge-out summary similar to that shown above will usually provide the appropriate level of detail (subject to the explanation of any unusual features);
  • where cumulative time costs exceed, or are expected to exceed,
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