Court of Appeal dismisses administrators' appeal over remuneration dispute

Background of the Case

The Court of Appeal recently delivered its judgment in the case of Frost and Wadsted vs The Good Box Co Labs Ltd, concerning a dispute over the remuneration of administrators following the implementation of a restructuring plan. The case was an appeal from a decision made by HHJ Klein, who had dismissed an application by the joint administrators of The Good Box Co Labs Limited to increase their remuneration.

Initial Administration and Restructuring Plan

The administrators, Jeremy Charles Frost and Stephen Patrick Jens Wadsted, were appointed on 28 June 2022. The administration concluded on 26 January 2023, coinciding with the effective date of a restructuring plan under Part 26A of the Companies Act 2006 for The Good Box Co Labs Limited. The administrators initially sought approval for their fees from the creditors at a virtual meeting held on 5 September 2022, where they provided a report estimating their fees at £225,817. The creditors approved their substantive proposals but opted to appoint a creditors' committee to further consider the fee proposals.

Complications in Fee Approval

The creditors' committee met on 1 November 2022 but failed to reach a decision on the administrators' fees due to a lack of clarity. Consequently, the administrators organized another decision procedure with a decision date of 30 December 2022, seeking approval for their fees. The administrators' fee approval report, dated 13 December 2022, detailed their work and estimated fees at £400,315.50, citing an extended trading period as the reason for the increase over the initial estimate.

Resolution and Restructuring Plan Implementation

At the decision procedure, the creditors approved a resolution allowing the administrators to charge fees based on the time properly spent by them and their staff, with fees on account approved at £235,000 plus VAT. The restructuring plan, sanctioned on 16 January 2023, required the administrators to hand over all company matters to the Plan Administrators. The plan outlined a process for adjudicating claims against the company, including the administrators' remuneration claims.

Dispute Over Remuneration

The administrators submitted a claim for outstanding remuneration and expenses on 6 February 2023. While their claim for expenses was accepted, the claim for remuneration was largely refused, except for an undrawn balance of £21,667. The Plan Administrators directed the administrators to follow the procedure under Insolvency Rule 18.24(b) to increase their claim, prompting the administrators to apply to the court.

Judge Klein's Decision

HHJ Klein, at a preliminary hearing, addressed whether the administrators had standing to apply under rules 18.24 and 18.28 of the Insolvency Rules 2016 after leaving office. He concluded that the administrators were not seeking an increase in the rate or amount of their remuneration fixed by the resolution, and thus their application did not fall within the ambit of Rule 18.24 or 18.28. However, he noted that had the application been within the ambit of these rules, he would have found the administrators had standing to apply despite having left office.

Appeal and Court of Appeal Ruling

The administrators appealed against the judge's decision on the Ambit Issue, arguing that the rules should be interpreted broadly to allow for an increase in the amount of remuneration on a time-cost basis. The Court of Appeal, however, dismissed the appeal, agreeing with Judge Klein's interpretation that the rules did not apply to the administrators' case, as their remuneration had been fixed on a time-cost basis rather than a set amount.

Consequences of the Appeal Dismissal

The dismissal of the appeal confirmed that the administrators' application under Rules 18.24 and 18.28 was not applicable. The Court of Appeal noted that the administrators were entitled to remuneration up to the fees estimate of £400,315.50 without further approval, subject to their previous commitment to seek creditor approval before drawing further amounts beyond the approved payment on account.

Implications for Practitioners

This case underscores the importance of understanding the specific provisions of the Insolvency Rules 2016 regarding the basis and amount of remuneration for insolvency office-holders. It highlights the need for clear communication with creditors and adherence to procedural requirements when seeking approval for fees.

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