Office Holders' Remuneration – the devil is in the details

This is the message the courts are sending to office holders seeking approval of their fees. In two recent English High Court decisions, both handed down by HHJ Cawson KC, the courts clearly expect office-holders, as fiduciaries, to produce a sufficient and proportionate level of information to justify the level of fees being claimed.

MTA Person Injury Solicitors LLP (in administration) was a challenge by the current administrators of the LLP to the former administrator's fees, whereas Wejo Limited (in administration), was a contested application for (1) approval of the joint administrators' pre-appointment costs and (2) determination of the basis by which post-administration fees were to be fixed.

Practice Direction on Insolvency Proceedings

In both cases, when considering the proper approach of the English courts to the entitlement of an office-holder to remuneration, the judge referred to paragraph 21 of the Practice Direction on Insolvency Proceedings ("IPD") which provides that the objective in any remuneration application is to ensure that the amount and/or basis of any remuneration fixed by the court is fair, reasonable, and commensurate with the nature and extent of the work properly undertaken by the office-holder.

The IPD sets out a number of guiding principles intended to assist the court in achieving this objective. The principles highlighted by the judges included:

• Justification – it is for the office-holder to justify their claim and they are responsible for preparing and providing full particulars of the basis for, and the nature of, their claim for remuneration;
• The value of the service rendered – the fees should reflect the value of the service rendered by the office-holder, not simply reimburse the office-holder in respect of time expended and cost incurred; and
• Proportionality of information – the nature and extent of information provided by the office-holder should be proportionate, having reference to the level of the remuneration and the nature, complexity and extent of the work that has been completed by the office-holder and the value and nature of the assets and liabilities with which the office-holder has had to deal.

The judge emphasised the point that office-holders are fiduciaries and as such have no entitlement to any remuneration unless to the extent expressly permitted by law. They are also under a duty to be frank with the court and creditors and not to advance a claim for any payment beyond that to which they consider themselves entitled. The onus is therefore on the office-holder to justify their remuneration and to provide a sufficient and proportionate level of information to explain the remuneration sought.

MTA Personal Injury Solicitors LLP

In April 2023, the court had fixed the former administrator's remuneration as administrator of the LLP and approved his pre-appointment costs and expenses. However, following investigations by the replacement administrators, an application was made to vary or set aside the earlier order and require the former administrator to have his fees and expenses determined at a detailed assessment hearing.

In considering the information produced in support of the earlier application, the judge acknowledged that he had been prepared to give the former administrator the benefit of the doubt notwithstanding his inability to provide documentary evidence to satisfy the requirements of the IPD. However, with the evidence produced by the replacement administrators that criticised certain actions of the former administrator, the judge felt bound to conclude that the remuneration sought in the earlier application had not been properly justified in the manner required by the authorities and the IPD.

Therefore, the judge upheld the replacement administrators' application and held that the former administrator's claim for remuneration should be subjected to a detailed assessment.

Wejo Limited

In this case, the administrators applied for an order that (1) unpaid pre-administration costs be paid out of the assets of the company and (2) their remuneration as administrators be fixed by reference to time properly spent by them and their staff in attending to the administration of the company.

Creditors opposed the application on the basis that the evidence provided by the administrators was insufficient to enable the court to be satisfied that the amounts claimed were justified. It was argued that there was insufficient "granularity" to allow the detailed consideration necessary for a remuneration application and there was no analysis of how and when the relevant work claimed to have been performed, was performed, by whom and at what level. In short, the timesheets produced would not allow a link to be made between the time spent by individuals and the narratives provided.

Again, the judge made the point that the administrators bore the burden of justifying their fees, as they were fiduciaries responsible for ensuring costs are reasonable and proportionate. While there had been compliance with the IPD "in a broad sense", the judge agreed with the creditors that what had been presented was deficient as there was no link between the time spent by individual and the timesheet narratives. The judge quoted from the earlier case of Mirror Group Newspapers PLC v Maxwell & Ors, where the court had found that the office-holder

"must explain the nature of each main task undertaken, the considerations which led them to embark upon that task and if the task proved more difficult, or expensive, to perform than to be first expected, to persevere in it. The time spent needs to be linked to this explanation so that it can be seen what time was devoted to each task. The amount of detail which needs to be provided will, however, be proportionate to the case."

The judge did not consider that what had been produced satisfied the requirement of the IPD and therefore was not prepared, on the evidence before him to approve the pre-administration costs or determine the basis by which the post-administration remuneration was to be fixed. The application was stood over and the administrators given permission to file supplemental evidence to address the issues identified.

Scotland

The need to ensure that the court is provided with sufficient information to allow it to determine the office- holder's fees has also been a matter of concern for the Scottish courts.

In Scotland, where the court is being asked to fix the fees and outlays of an office-holder the convention is that the court will usually appoint another insolvency practitioner known as a "Court Reporter" to: consider the office-holder's claim; review their files and then report to the court on what they consider is the appropriate level of remuneration for the office-holder in the relevant period. It is a process which is not without controversy with a number of cases over the last 10 years where the role of the Court Reporter has been examined by the courts.

In the 2023 case of Future Renewables Eco plc, Lord Braid commented that the breakdown of time costs provided to the Court Reporter raised as many questions as it provided answers. In addition, the judge was not convinced that the Court Reporter had given adequate consideration to the extent to which work performed by the former administrators had provided value.

Therefore, office-holders cannot plead ignorance of what the courts on both sides of the border expect when it comes to approving remuneration. They need to be able to justify the amounts claimed, subject always to this being done in a proportionate way.

The courts will give weight to the professional integrity of office-holders, bearing in mind that they are members of a regulated profession and also officers of the court. However, that does not remove the need for office- holders to provide a narrative description and explanation of the reasons why it was considered reasonable and/or necessary and/or beneficial for the particular work to be done and to give details of why particular tasks or categories of task were undertaken and why such tasks or categories of task were to be undertaken or have been undertaken by particular individuals and in a particular manner.

The devil is in the details – and the details really do matter if you want to get paid for the work done.