Is An Insolvency Practitioner Entitled To Fees Overview
Is an Insolvency Practitioner entitled to fees? Well, perhaps a fair answer to the question the answer is yes and no.
The fees of an Insolvency Practitioner are an expense of an insolvent estate once they have been approved.
For starters, the payment of fees is an expense of an insolvency estate subject to a ranking system that determines the order in which a range of expenses are to be discharged. This is known as the Statutory Order of Payment in Insolvency Proceedings.
Ordinarily, fees will be paid by the insolvent estate from the assets realised.
Of course, it is all very well ranking in the statutory order and even working under Stakhanovite conditions but if realisations are hoovered up by other expenses which rank higher then such entitlements may be reduced to confetti.
Creditor Approval For Insolvency Practitioner Fees
Fees are not some unfettered right such that once there are sufficient assets in an estate for an Insolvency Practitioner to rank high enough in the statutory pecking order, he or she can assume they will be paid. The all-important matter of approval from creditors cannot ever be overlooked save if approval is sought from the Court.
It is creditors in the vast majority of cases who set the fee basis of the Insolvency Practitioner’s remuneration. It may also be subject to control by the Court if creditors do not approve the basis. Creditors have the right to challenge fees subject to the prevailing rules being applied.
Fees can be based on the following basis:
- Time costs subject to an Insolvency Practitioner Fee Estimate.
- Fixed fee
- Percentage of assets realised and distributed.
Kooter V Official Receiver
The matter of fees came up for discussion in the case of Kooter v Official Receiver & Ors [2023] EWHC 594 (Ch) (“Kooter”). This was an annulment of Bankruptcy case where fees were granted in a limited way by the Court to be paid by the creditor seeking the annulment.
Kooter explored some of the basic remuneration principles detailed below.
Insolvency Practitioners Do Not Work For Nothing
In surveying the fees landscape through exploration of the relevant case law the judge in Kooter kicked off with the position that perhaps the man on the Clapham omnibus might not look to flesh out any argument over in that an Insolvency Practitioners will typically expect to be paid for the work they do:
Ms Kreamer referred me to the well known case of Butterworth v Soutter [2000] BPIR 582, a decision of Mr Justice Neuberger (as he then was) where he stated as follows, “prima facie it cannot be envisaged that a trustee in bankruptcy will work for nothing, and normally, when a bankruptcy order has been properly made, subject to questions of reasonableness and subject to special facts, the trustee will be paid out of the estate.”
Court Discretion On Fees
The Court has a wide discretion on the matter of Insolvency Practitioner’s fees as demonstrated in the case of Oraki v Dean and Dean ( A firm) [2013] EWCA Civ 1629 in which in Kooter the Court said:
Oraki also clarifies that there is no presumption in favour of awarding costs to the trustee. At paragraphs 30 and 31, Lord Justice Floyd stated,
Immediately after the passage from Neuberger J’s judgment in Butterworth v Soutter which I have cited, he went on: ‘Prima facie it cannot be envisaged that a trustee in bankruptcy will work for nothing, and normally, when a bankruptcy order has been properly made, subject to questions of reasonableness and subject to special facts, the trustee will be paid out of the estate.’
[31] In London Borough of Redbridge v Mustafa that passage was argued to create a presumption in favour of awarding the trustee his costs. Sir Andrew Morritt pointed out at [33] that there was no presumption. I respectfully agree. A presumption is the antithesis of an unfettered discretion. However the fact that the trustee is fulfilling a function for the court, and that trustees could not be prevailed upon to act if their remuneration was contingent on the bankruptcy not being annulled, are both factors which may weigh heavily in the exercise of the discretion in an individual case.
[32] Thus in Mellor v Mellor [1992] 1 WLR 517 the issue concerned the application of the former RSC Ord 30 r 3 to the remuneration of a court appointed receiver. The receivership was later discharged because of non-disclosure on the part of the applicant for the order. There are obvious analogies with the position of a trustee where the bankruptcy is annulled. Michael Hart QC (later Hart J) said at 524G:
‘A professional receiver cannot be expected to accept office except on the understanding that he is to be entitled, in principle, to remuneration.’
[33] Later, at 525C-D he said: ‘I am myself unable to understand the basis on which it is said that the receiver’s rights to remuneration in respect of services actually rendered by him during the currency of his appointment can depend in any way on whether the order appointing him would not have been made if the party applying for it made fuller disclosure to the court than it in fact did. Absent any evidence that the receiver was in some way complicit in the non-disclosure or other impropriety on behalf of the applicant in obtaining the order, the receiver is entitled to act and be remunerated for acting on the footing that his appointment is valid.’
[34] On the other hand, there may be circumstances where the trustee’s conduct outweighs considerations such as this. In Ella v Ella [2008] EWHC 3258 (Ch), [2009] BPIR 441 a bankruptcy order had been made on the application of a wife in acrimonious divorce proceedings to enforce costs orders against her wealthy husband. Sir Edward Evans-Lombe (sitting as a judge of the High Court) considered that the bankruptcy proceedings were an abuse of the process of the court and annulled the bankruptcy under the provisions of s 282(1)(a). Although he allowed the costs of the Official Receiver to be taken from the estate he declined to make similar provision for the costs of the joint trustees. It is clear from the report that Sir Edward Evans-Lombe thought that the trustees might have other ways of obtaining their remuneration. He also said this at [26]:’It seems to me that the trustees are not wholly blameless for their own position. They should have realised that this was highly likely to be the sort of bankruptcy proceedings which constitute an abuse of process.’
Insolvency Practitioners Need To Provide Value
The case of Brook v Reed [2011] EWCA Civ 331 suggested that an Insolvency Practitioner has to be efficient and effective in the execution of their duties. Efficiency is therefore key to getting paid. It is also one of the ingredients in an Insolvency Practitioner holding office as the threshold for removal of a Liquidator includes efficiency, bias and vigour.
There is a need to show value has been provided.
So an Insolvency Practitioner can anticipate payment for work undertaken properly:
The real task for the court in any particular case is to balance these principles in their application to the facts and circumstances of the case. In Simion v Brown at [27] I said:
“The task for the court is to arrive at a level of remuneration which balances the various criteria of the value of the service rendered, the proportionality of remuneration and a fair and reasonable remuneration for the work properly undertaken, as these criteria are explained in the Practice Statement. The result must resolve the conflict which may in a particular case exist between these criteria. The conflict is likely to be the more acute in cases such as the present, where substantial costs have been incurred in relation to a relatively small estate.”
In Hunt v Yearwood-Grazette at [9], a decision cited by Lloyd LJ when giving permission to appeal in the present case, Proudman J said:
“The court’s task is to balance all the various criteria, resolving any conflict between them arising in the particular case, in order to arrive at the proper level of remuneration. In doing so, it is settled law that the court has to reward the value and benefits of the services rendered rather than the cost of rendering such services. Thus, in fixing the remuneration, time spent is less relevant than value provided. I was referred to the judgment of Ferris J in Mirror Group Newspapers plc v Maxwell and Others (No 2) [1998] 1 BCLC 638, [1998] BCC 324 and also Cooper v The Official Receiver [2005] NICh 1. The onus of demonstrating such value or benefit is on the applicant and the court must resolve any element of doubt in favour of the estate.”
Part 6 Of The Practice Direction – Insolvency Proceedings
Hunt v Yearwood-Grazette [2009] EWHC 212 (Ch) highlighted that Part 6 of the Practice Direction – Insolvency Proceedings on insolvency officeholder remuneration means that Insolvency Practitioners need to justify their fees.
The Practice Direction refers to the requirement to justify the work done which will entail elucidation of why a piece of work has been done and demonstrate the benefit to the insolvent estate.
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