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In what circumstances will the court exercise its discretion to extend the time limit to challenge the remuneration and expenses of appointed administrators? James Morgan and Matthew Weaver, barristers at St Philips Chambers, take a look at the decision in Re Calibre Solicitors Ltd and highlight the lessons lawyers should learn from this case.
Re Calibre Solicitors Ltd (in administration) [2014] Lexis Citation 259, [2014] All ER (D) 187 (Dec)
An application was made under the Insolvency Rules 1986 (IR 1986), r 2.109 to challenge the remuneration and/or expenses of appointed administrators on the ground that they were excessive. The issue was whether that application, in addition to challenging remuneration detailed in a first report, could also challenge remuneration and/or expenses detailed in a second progress report, or whether a second application and an extension of time to make it were required. Mr Registrar Jones held that, on the true construction of the IR 1986, the eight-week period within which to challenge remuneration and expenditure applied to the specific report which detailed the remuneration and expenses challenged. Accordingly, the company could not rely upon the first report to challenge the remuneration and expenses detailed in the second report. A second application was required and the court granted an extension of time in which to make it.
Administrators were appointed in respect of Calibre Solicitors Ltd. Their first progress report to creditors was dated 6 September 2013 and, within the eight-week time limit, on 31 October 2013 a creditor (JC) issued an application under IR 1986, r 2.109 to challenge the remuneration and expenses set out therein as 'excessive'. The administrators' second progress report was dated 5 February 2014. On 13 June 2014, JC issued a second application to challenge the remuneration and expenses on the same grounds. The second application was made well outside the eight-week time limit prescribed by IR 1986, r 2.109(1B). JC had also made an application, within the eight-week time limit, to challenge the remuneration and expenses set out in the administrators' third progress report.
The total remuneration (not expenses) claimed in the three progress reports was £291,000. This was against an estimate for the administration of £150,000. The parties' estimated costs for the three applications were £175,000.
The Registrar was required to deal with three issues:
The issues arose because JC had not made the second application within the prescribed eight-week time limit. IR 1985, r 2.109(1B), which was inserted as part of the 2010 amendments to the IR 1986, provides that:
'The application must, subject to any order of the court under Rule 2.48A(4), be made no later than 8 weeks after receipt by the applicant of the progress report which first reports the charging of the remuneration or the incurring of the expense in question.'
IR 1986, r 2.48A(4) applies to an application by a creditor for further information about remuneration or expenses, but there had been no such application in this case.
In relation to the first issue, JC argued that the first application was sufficient because the matters it raised were essentially the same for both reports. The administrators relied on the plain wording of IR 1986, r 2.109(1B) and argued that the eight-week period applied to the specific report, which details the remuneration and expenses being charged. In other words, that an application must be issued in respect of each report in which the challenged remuneration and expenses is set out.
As to second and third issues, JC relied on IR 1986, r 12A.55(2) which provides that:
'The provisions of CPR 3.1(2)(a) (the court's general powers of management) apply so as to enable the court to extend or shorten time for compliance with anything required or authorised to be done by the Rules.'
JC contended that there was no prejudice to the administrators in extending time. The administrators disputed that the rule applied to a limitation provision such as the eight-week period here or that the court should exercise its discretion in favour of JC.
The Registrar decided the issues as follows:
In relation to the first issue, the Registrar relied on the plain wording of IR 1986, r 2.109(1B) as reinforced by IR 1986, r 2.109(1A), which refers to remuneration 'charged' and expenses 'incurred' rather than to the future. This being the case, an application under IR 1986, r 2.109 can only challenge already incurred or charged expenses and remuneration.
As regards the second issue, the Registrar held that the purpose of the eight-week time limit was to provide certainty to administrators and creditors within a short time scale but that, while this was important, he could not conclude that policy prohibited him from applying the wide words of IR 1986, r 12.55A(2) to IR 1986, r 2.109(1B). That was so even though the latter provision was expressed in mandatory terms, using the word 'must'.
The Registrar also resolved the third issue in favour of JC. He took into account that allowing the second application would probably not have any significant effect in relation to certainty when the first and third applications would in any event proceed and the principles of challenge were the same in relation to all three applications. As IR 1986, r 2.109(1B) applied a sanction, the Registrar also considered the Court of Appeal's decision in Denton v TH White Ltd [2014] EWCA Civ 906, [2014] All ER (D) 53 (Jul) but held that an extension should nevertheless be granted largely for the foregoing reasons.
So far as the writers are aware, this is the first reported decision on these important issues in relation to challenging the remuneration and expenses of administrators. In relation to the first and second issues, the Registrar has confirmed that the courts should apply the ordinary meaning of the wording of IR 1986. r 2.109(1B) and IR 1986, r 12A.55(2). The third issue will always be fact sensitive, but the Registrar's judgment identifies that an important consideration will be whether the policy of certainty within a short time scale will be significantly undermined by an extension of time.
For those advising creditors, the simple message must always be not to leave matters to chance but to make any application under IR 1986, r 2.109(1B) within the eight-week period. However, if the deadline is missed then an application can be made for an extension of time. Whether an extension will be granted will depend on the facts, but an important consideration is whether the application will materially delay the resolution of the amount of the office-holder's remuneration and expenses.
A lesson for all arises out of the Registrar's further comments towards the end of his judgment that, given it was not difficult to envisage that a minimum sum of £175,000 was unchallengeable, only some £112,000 was in fact in issue as against estimate costs of £175,000 and therefore the current approach of the parties was 'disproportionate'. He therefore proposed a streamlined procedure with strict costs budget guidelines.
Interviewed by Alex Heshmaty
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor
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First published on LexisPSL Restructuring and Insolvency
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