Former Good Box administrators' bid for additional remuneration rejected... for now

Overview

The former joint administrators of Good Box made an application under rules 18.24 and 18.28 of the Insolvency (England and Wales) Rules 2016 for approval of remuneration over and above what had previously been approved by resolution of the company’s creditors. Whilst the Court found that former joint administrators have standing to bring an application under rules 18.24 and 18.28 more generally, these rules were not engaged on the facts of this case. As a result, the Court dismissed the application, but made clear that it is open to the former administrators to pursue this relief through an alternate route.

Background

The Applicants were appointed as the joint administrators of The Good Box Co Labs Limited (the “Company”) on 28 June 2022.

On 30 December 2022, the Company's creditors passed a resolution fixing the Applicants' remuneration by reference to the time properly spent by them charged at their hourly rates, and approving fees of £235,000 plus VAT.

On 16 January 2023, a restructuring plan in respect of the Company was approved and the Applicants’ appointment as administrators ceased to have effect on 26 January 2023. The restructuring plan provided for payment of the fees approved in the resolution within 14 days of the effective date of the restructuring plan. It also provided that any other remuneration claimed by the administrators would be subject to an adjudication process and, in the absence of agreement with the plan administrators, stated that the Applicants could apply to court for approval of their remuneration in accordance with the Insolvency (England and Wales) Rules 2016 (“IR2016”).

The Applicants made a claim of £229,751.38 to Jo Milner and David Buchler of Buchler Phillips, the plan administrators, under the adjudication process. Approximately £209,000 of that amount represented a claim for fees over and above the £235,000 payment. The plan administrators did not admit the claim for the additional £209,000 and the Applicants made an application under rules 18.24 and 18.28 of the IR2016 for court approval of the additional remuneration.

The Court’s Decision

Rule 18.24 provides that an office-holder who considers the rate or amount of remuneration fixed to be insufficient, or the basis of remuneration fixed to be inappropriate, may request that the creditors increase the remuneration or change the basis for fixing it, or may apply to the court to do so.

Rule 18.28 describes the circumstances in which such applications can be made and the procedural requirements for making them.

There were two issues before the Court:

1. Did the Applicants have standing to make an application under rule 18.28(1) of IR2016 even though, at the time the application was made, they were not in office as office-holders, being the company’s former administrators?

2. Given that the Applicants contended that their remuneration was fixed by the resolution on a time-cost basis, could they make a rule 18.28 application?

Time-cost basis fixed by the resolution

The Court considered the second issue first, stating that it was entirely understandable that the Applicants contended that the resolution fixed their remuneration on the time-cost basis; indeed, the first part of the first sentence of the resolution was substantively the same as rule 18.16(2)(b) of IR2016.

However, as the Company and NGI (which had proposed the restructuring plan) argued, and the Applicants accepted, the Applicants were not seeking an increase in the rate or amount of their remuneration, nor were they seeking to change the basis of their remuneration. Rather, they were seeking to establish, by means of the application, that they should be paid more than the £235,000 limit approved in the resolution. The question was whether this fell within the ambit of rule 18.28.

Looking at rules 18.24 and 18.28 of IR2016 in the context of the whole of the chapter in question, the Court found that they aim to provide a mechanism to office-holders: (1) to obtain an increase in the percentage of the value of assets to which it has been initially determined the office-holders are entitled (see rule 18.16(2)(a)), or (2) to obtain an increase in the set amount which it has been initially determined they will be paid (see rule 18.16(2)(c)). The rules also aim to provide a mechanism to office-holders to obtain a change in the basis of remuneration set out in rule 18.16(2) to which it has initially been determined the office-holders are entitled. The rules may even aim to provide a mechanism for office-holders to obtain an increase in their charge out rates when their remuneration has initially been fixed on the time-cost basis.

The Applicants were not seeking any of these changes to their remuneration. In particular, they were not seeking an increase in any set amount which it had been initially determined they would be paid. The £235,000 payment in the resolution did not determine the amount the Applicants would ultimately be paid. Rather, it was no more than an authorisation, by the Company's creditors, for the immediate withdrawal by the Applicants from the Company's funds of £235,000 on account of remuneration to which the Applicants were more generally entitled because of the approval of the resolution.

As a result, what the Applicants were seeking did not fall within the ambit of a rule 18.28 application. As the Applicants did not, in fact, consider the rate or amount of remuneration fixed by the resolution to be insufficient or the basis so fixed to be inappropriate, they did not have standing, under rule 18.24 of the IR2016, to make a rule 18.28 application. The Court emphasised that it would be open to the Applicants to seek this relief through an alternate route, by way of an insolvency application or perhaps under the adjudication process for bringing their claim to court by way of a general civil claim. However, a rule 18.28 application was not the right way for the Applicants to have proceeded.

The standing issue

Although its conclusion on the second issue was dispositive, the Court proceeded to consider the first issue — whether former administrators have standing to make rule 18.28 applications — because the parties had argued it at length and indicated they may seek permission to appeal. Ultimately, the Court sided with the Applicants on this issue, finding that former administrators can bring rule 18.28 applications.

The Court accepted that the ordinary meaning of "an office-holder" and of "an administrator" is of an insolvency practitioner who is currently in office. However, it is not enough simply to ascribe their ordinary meaning to "an office-holder" and "an administrator" — rules 18.24 and 18.28 must be looked at in context. Looking at these rules in the context of the whole of the chapter in question, the Court noted that various other rules in the chapter refer to simply “office-holders”, “liquidators“ and “administrators” where the rules likely mean former office holders, former liquidators and former administrators. (see, e.g., rules 18.34 and18.23).

The Court found assistance in the Supreme Court’s decision in Brake v. The Chedington Court Estate Ltd, [2023] 1 WLR 3035, which concerned the proper construction of section 303(1) of the Insolvency Act 1986. The Court stated that two points emerged from Brake on the proper approach to determining whether an applicant has standing to make an application: (1) the Court will adopt a purposive interpretation of insolvency legislation, and (2) the Court's focus will likely be on whether the outcome of the application will directly affect the applicant's rights or interests in connection with powers conferred by the statutory insolvency regime.

Former administrators can be directly affected by the outcome of a rule 18.28 application, which is an application relating to an office-holder's statutory power to charge remuneration for their services. In short, Brake supports a purposive (rather than ordinary meaning) interpretation of rules 18.24 and 18.28 of IR2016 and can also support an interpretation of those rules which permits former administrators to have standing to make a rule 18.28 application.

Conclusion

Although the Court concluded that former administrators do have standing to make a rule 18.28 application, for the reasons outlined above, the Court concluded that a rule 18.28 application was not the appropriate avenue for the relief the Applicants were seeking. As a result, it dismissed the application.

Judge: HH Judge Klein sitting as a High Court Judge

Counsel: Nicholas Leah of 3 Hare Court Chambers (instructed by The Wilkes Partnership) for NGI

Eleanor Temple of Kings Chambers (instructed by Prosperity Law) for the Applicants (the former joint administrators of Good Box)