Administrators’ right to outstanding remuneration (Walker v National Westminster Bank plc)

Simon Passfield of Guildhall Chambers discusses the case of Walker and another v National Westminster Bank plc which raised the question of whether administrators had a proprietary interest in redress monies which survived a company dissolution.

Original news

Walker and another v National Westminster Bank plc and another [2016] EWHC 315 (Ch), [2016] All ER (D) 268 (Feb)

The Chancery Division dismissed an application by the claimants, who were the former administrators of a holiday park, for an order that the unpaid balance of their remuneration should be charged on and payable out as a sum of £62,646.06. The court held that the payment in issue was not an asset, and could not be subject to the charge as sought.

What was the background to the judgment?

In 2008, the claimants were appointed as administrators of Sunnyside Holiday Park Limited (the company) by Lancashire Mortgage Corporation (LMC). Their appointment was renewed several times, but eventually expired in 2012, at which time LMC appointed fixed-charge receivers in their place. At the time they ceased to hold office, the claimants had recorded time costs of £164,664. LMC agreed to make a payment towards those costs from the sale proceeds of the company’s property, which reduced the claimant’s unpaid recorded time costs to approximately £132,000.

After the company was dissolved, the claimants were notified by Natwest that it had carried out a review of two interest rate swaps sold to the company in 2003 and had made a ‘provisional determination of redress’ in the sum of £62,646.06. Natwest indicated that if the company was restored to the register it would make a formal offer of redress in that amount.

The administrators asserted that they were entitled to the benefit of any redress monies by reason of paragraph 99(3) of Schedule B1 to the Insolvency Act 1986, which provides that a former administrator’s remuneration and expenses shall be:

  • charged on and payable out of property of which he had custody or control immediately before his appointment ceased to have effect, and
  • payable in priority to any floating charge

They sought an order directing Natwest to pay the monies directly to them.

What were the legal issues the judge had to decide?

The principal issue for determination was whether the monies claimed by the administrators constituted an asset which was potentially subject to a statutory charge. The judge also considered whether the former administrators would be able to accept any offer of redress.

What were the main legal arguments put forward?

The former administrators argued that the right to the redress payment was either a chose in action which arose at the time of the mis-selling or an interest incidental to the mis-sold swaps, which were assets which were under the custody or control of the former administrators immediately before their appointment ceased to have effect. In either case, the company’s right to receive the redress monies was subject to the former administrators’ statutory charge. That charge gave the former administrators a proprietary interest in the redress monies which survived the company’s dissolution. Accordingly, the court could direct Natwest to pay the redress monies directly to the former administrators without the need for the restoration of the company.

Natwest was prepared to comply with any order made by the court provided it could be assured that it would achieve a good discharge as against the company or anyone claiming through it.

The Treasury Solicitor asserted that there was no entitlement to any payment until Natwest had made a formal offer of redress and that offer had been accepted by or on the company’s behalf. That could only happen if the company was restored to the register. He also raised concerns as to whether the former administrators had waived their entitlement to any further remuneration and whether the right to redress was an asset which arose prior to the cessation of administration.

What did the judge decide, and why?

The judge held that the payment claimed by the former administrators was not an asset because Natwest was not under any obligation to pay any redress to the company (or anyone else) unless and until a formal offer of redress had been made and accepted by or on behalf of the company. Accordingly, it could not be subject to a statutory charge.

He further held that the former administrators were unable to pursue any claim or rights which the company may have had in relation to the mis-sold swaps (eg a claim for mis-selling or a right to enforce the Financial Conduct Authority (FCA) redress scheme) or to accept any offer of redress made by Natwest. Although these rights might be assets to which the para 99 charge attached, the power or right to exercise them would have vested in the Crown as bona vacantia.

Moreover, even if power existed to make the order for direct payment sought, there would be good reason in this case (and probably in most cases) not to do so. The functions of pursuing and agreeing the amount and terms of any offer of redress, therefore compromising claims the company might bring, should be exercised on behalf of the company, as should consideration of the nature and priority of claims to entitlement on distribution.

To what extent is the judgment helpful in clarifying the law in this area?

This case confirms that the FCA review process is separate and distinct from, and wholly independent of, a claim for the mis-selling of swap products. Under that scheme, the customer has no right to compel payment until it has received and accepted a formal offer of redress. If the company has been dissolved, it will need to be restored to the register before an offer of redress can be made.

However, the judgment does leave open the question of whether a post-restoration redress payment will be caught by a para 99 charge. It is likely that there will need to be further guidance on this point.

What practical lessons can those advising take away from this case?

The judge indicated that he would not have been prepared to appoint a receiver to enforce the former administrators’ para 99 charge in the present case as it was unclear that they were entitled to receive any further payments. This is because their final progress report stated that they had agreed to receive a payment from LMC in ‘full and final settlement’ of their outstanding remuneration. In light of this judgment, administrators should give careful thought to how they deal with any outstanding remuneration after the cessation of their term of office.

Simon Passfield is a specialist insolvency barrister who undertakes litigation and advisory work in all aspects of corporate and personal insolvency law. He has been consistently recognised as a leading junior in this field and has appeared in a number of significant reported insolvency cases.

Interviewed by Barbara Bergin.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

 

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