On 5 March 2024, HHJ Klein, sitting as a High Court Judge, handed down judgment in the matter of Frost & Anor v The Good Box Co Labs Ltd & Ors [2024] EWHC 422 (Ch).
The former joint administrators (“Former Administrators”) of The Good Box Co Labs Limited (“Good Box”) applied under rules 18.24 and 18.28 of the Insolvency (England and Wales) Rules 2016 (“IR2016”) to increase their remuneration (“the Application”).
Background:
Good Box, having entered administration in June 2022, exited administration in January 2023 upon the sanctioning of a restructuring plan under section 901F(1) of the Companies Act 2006 (“the Restructuring Plan”). However, in December 2022, the creditors of Good Box fixed the remuneration of the Former Administrators by a resolution providing:
“That the Joint Administrators’ fees be charged by reference to the time properly spent by them and their staff in dealing with the matters relating the to the Administration, such time to be charged at the hourly charge out rate of the grade of staff undertaking work at the time the work is undertaken. Fees on account of these costs to be approved at £235,000 plus VAT.”
Clause 8.3 of the Restructuring Plan, which deals with increased remuneration claims, provides that:
“Any unpaid fees or expenses of the Administrators approved by the Administration Creditors Committee as at the Restructuring Plan Effective Date will be paid by the company within 14 days of the Restructuring Plan Effective Date. Any other fees or expenses claimed by the Administrators will be subject to the Adjudication Process [provided for in the Restructuring Plan at clause 10.2] and in the absence of agreement with the Plan Administrators the Administrators shall be at liberty to apply to Court for approval in accordance with [IR2016].”
Application:
The Former Administrators unsuccessfully applied to the Plan Administrators under the Restructuring Plan’s Adjudication Process for an increase in their remuneration by £229,751.38. They therefore brought the Application under rules 18.24 and 18.28 of the IR2016.
Rule 18.24 of IR2016 provides that:
“An office-holder who considers the rate or amount of remuneration fixed to be insufficient or the basis fixed to be inappropriate may –
(a) request the creditors to increase the rate or amount or change the basis in accordance with rules 18.25 to 18.27;
(b) apply to the court for an order increasing the rate or amount or changing the basis in accordance with rule 18.28…”
The relevant parts of rule 18.28 of IR2016 provide that:
“(1) This rule applies to an application by an office-holder to the court in accordance with rule 18.24 for an increase in the rate or amount of remuneration or change in the basis.
(2) An administrator may make such an application where the basis of the administrator’s remuneration has been fixed—
(a) by the committee and the administrator has requested that the rate or amount be increased or the basis changed by decision of the creditors (by a decision procedure), but the creditors have not changed it;
(b) by decision of the creditors (by decision procedure); or
(c) by the approval of either the secured creditors or the preferential creditors or both in a case where the administrator has made a statement under paragraph 52(1)(b) of Schedule B1.”
Issue:
HHJ Klein had to determine a preliminary issue of whether the Former Administrators even had standing to bring the Application in the context of them having already left office.
Decision:
The Former Administrators contended that their remuneration had initially been fixed by the December 2022 resolution on a time costs basis rather than on a set amount basis.
HHJ Klein dismissed the Application on the grounds that the Former Administrators “neither consider that the rate or amount of remuneration fixed by the resolution is insufficient or that the basis so fixed is inappropriate” [32]. He found that, on the particular facts of the case, the Former Administrators had proceeded with the Application under the wrong rules and there were alternative means by which it could have been brought.
Notwithstanding the dismissal of the Application, HHJ Klein answered the broader question of whether former office-holders could make such applications to increase their remuneration.
In a comprehensive review of Part 18, Chapter 4 of IR2016, HHJ Klein concluded “that former administrators can make a rule 18.28 application” [41]. He acknowledged, at [42], that even though the ordinary meaning of an office-holder and of an administrator is “of an insolvency practitioner who is currently in office,” IR2016 were not overly prescriptive such as to preclude applications from insolvency practitioners after they had left office.
He found some support for his conclusion in Re Brilliant Independent Media Specialists Ltd (in liquidation) [2015] BCC 113 (a decision of then Registrar Jones) where former administrators successfully made an application to initially fix – as opposed to increase – their remuneration.
He also found that the Supreme Court’s recent decision in Brake v The Chedington Court Estate Ltd [2023] 1 WLR 3035 – a case about the proper construction of section 303(1) of the Insolvency Act 1986 – provided assistance. In particular, he took away two points from Brake; first, that courts adopt a purposive (rather than an ordinary meaning) interpretation of insolvency legislation and, second, that the focus of courts is likely to be on the outcome of whether the application will directly affect the applicant’s rights or interests in connection with powers conferred by insolvency legislation.
Practical implications:
Although HHJ Klein’s conclusion on the question of whether a former office-holder can make a rule 18.28 application was obiter dictum, it is still a persuasive authority for future judges and will provide comfort to insolvency practitioners applying to increase their remuneration when no longer in office.
Nicholas Leah successfully appeared as sole counsel on behalf of the Fourth Respondent, a secured creditor of Good Box and the representative of the former creditors’ committee.
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