Bulletins | March 6, 2024

Frost v Good Box Co Ltd remuneration

Jeremy Charles Frost & Anor v The Good Box Co Labs Ltd & Ors [2024] EWHC 422 (Ch) is a rare case about office-holders’ remuneration that raises some interesting points, although one at least is specific to the nature of the application before the court.

The application before HHJ Klein, sitting as a High Court Judge, was for an order pursuant to rr 18.24 & 18.28 Insolvency (England and Wales) Rules 2016 increasing the amount of the applicants’ remuneration as the joint administrators of The Good Box Co Labs Ltd. Trial of a preliminary issue had been ordered as to whether the applicants were entitled to apply for a determination of their fees (called “the standing issue”). The judge noted at an early stage in his judgment that that required the resolution only of the question whether the applicants had standing to make an application under rr 18.24 and 18.28 IR 2016 when, at the time they made the application and thereafter they had not been office-holders in relation to the company.

The company went into administration in June 2022, and the applicants were appointed as joint administrators. In January 2023 a restructuring plan was sanctioned under the Companies Act 2006.

The application before HHJ Klein proceeded on the basis, that the company’s creditors had fixed the applicants’ remuneration in December 2022 by a familiar form of resolution:

“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.”

One thing that appears to have contributed, to uncertainty about the basis of the applicants’ remuneration was a clause in the restructuring plan which provided:

“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 plan] 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 [IR 2016].”

The applicants made a claim to the plan administrators, the second and third respondents, for payment of remuneration of £229,751.38. Of that sum, about £209,000 represented a claim for fees incurred over and above the £235,000 payment on account which had been approved by the resolution. The plan administrators had not admitted the claim for the additional £209,000, hence the application.

Judge Klein’s judgment contains a review of the rules in Part 18 Chapter 4 IR 2016 (“Remuneration and Expenses in Administration, Winding Up and Bankruptcy”).

He turned next to a question arising out of submissions in the preliminary issue itself, namely whether  the applicants could make an application under r 18.28 when their remuneration had in fact already been fixed on the time-cost basis. He noted that they were not seeking an increase in the rate of their remuneration, nor were they seeking a change to the basis of their remuneration. He asked, rhetorically, “[A]re they seeking an increase in the amount of remuneration fixed by the resolution, so engaging rule 18.28 of IR2016?” and went on to give the answer “No”. Applying his analysis of the rules to the application before him, he said this:

“Looking at rules 18.24 and 18.28 of IR2016 in the context of the whole of the chapter in question of IR2016, they aim provide a mechanism to office-holders (i) to obtain an increase in the percentage(s) of the value of the relevant assets to which it has been initially determined the office-holders are entitled (see rule 18.16(2)(a) of IR 2016), or (ii) to obtain an increase in the set amount which it has been initially determined they will be paid (see rule 18.16(2)(c) of IR 2016). The rules aim too to provide a mechanism to office-holders to obtain a change in the basis (or bases) of remuneration set out in rule 18.16(2) of IR2016 to which it has initially been determined the office-holders are entitled. The rules may even aim also 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.”

He concluded that, as the applicants were not seeking an increase in the rate or amount of their remuneration fixed by the resolution and were not seeking a change in the basis of their remuneration, their application did not fall within the ambit of r 18.28: “To put the same point another way, as they do not, in fact, consider that the rate or amount of remuneration fixed by the resolution is insufficient or that the basis so fixed is inappropriate, they do not have standing, under rule 18.24 of the IR2016, to make a rule 18.28 application.” He conceded, however, that there might be an alternative route by which the applicants could obtain a determination as to whether they should be paid more, which might include a different form of application or recourse to the adjudication process or a general civil claim.

Having reached that conclusion the judge said that it was unnecessary to answer the question of the applicants’ standing to apply under r 18.28(1) IR2016 in circumstances in which they were, and had not been, in office as administrators in relation to the company, although he went on to do so in case there was an appeal. He concluded that former administrators could apply under r 18.28.

He accepted that the ordinary use of the term “office-holder” in rr 18.24 and 18.28 meant “an insolvency practitioner who is currently in office.” However, he also took the view that “Rules 18.24 and 18.28 of IR2016 need to be set in context:” they were part of a chapter in which other rules did not make reference to office-holders who were currently in office; some included reference to former office-holders. He drew some support for his view from Super Aguri F1 Ltd and Re Brilliant Independent Media Specialists Ltd (in liquidation) permitting former administrators to apply (under the IR 1986) for their remuneration to be fixed. 

The administrators’ application was accordingly dismissed.