[2025] EWHC 2674 (Ch)

Finally, I turn to Part 18, “Reporting and Remuneration of Office-holders” (viz the three types of office-holder I have already referred to). Rule 18.3 provides for the provision of progress reports which, by Rule 18.4, are to contain “the basis fixed for the remuneration of the office-holder under Rules 18.16 and 18.18 to 18.21 as applicable.”

Rule 18.16 provides that remuneration must be on one of three stipulated basis or a combination thereof: a percentage of the value of property dealt with; or of property recovered; or by reference to time spent; or a set-amount. It precludes the choice of some other measure, and to that extent, if applicable to the realisation by the administrator of property subject to a fixed charge, would constrain the security-holder’s choice.

While it is fair to say that the options available seem fairly comprehensive, they may not include an hourly rate with a costs cap (Re Pudsey Seel Services Ltd [2015] BPIR 1459), so if Rule 18.16 applies to the administrator’s remuneration for realising property subject to a fixed charge, this will involve some restriction of the security-holder’s “normal rights”. In any event, there is ample room for disagreement as to which of the three alternatives or any combination thereof is most likely to optimise the net price obtained, in circumstances in which a significant influence as the basis to be adopted would be one of the “normal rights” of a security-holder.

Sealy & Milman comment on Rule 18.16:

“An office-holder may, in an appropriate case, also be paid remuneration and allowed expenses for work done in relation to property which does not form part of the assets in the insolvency procedure, for instance property held by the company on trust or property subject to a fixed or floating charge, where the chargee has not appointed a receiver”

(referring, inter alia, to Re Berkeley Applegate (Investment Consultants) Ltd (No 3) and Gillan v HEC Enterprises Ltd [2016] EWHC 3179 (Ch).

Rule 18.17 addresses remuneration of joint-office holders. For present purposes, it suffices to note that where the joint office-holders disagree as to the appropriate apportionment between them, the matter may be referred “to the committee” (viz the creditor’s committee); to the creditors (by a decision procedure) or, so far as relevant, “the court”. A wholly secured creditor is not permitted to be a member of a creditor’s committee (Rule 17.4(2)(b)) and its vote has no weight in a decision procedure (Rule 15.31(4)). A partially secured creditor’s vote counts to the extent of any unsecured amount only (Rule 15.31(5)).

Rule 18.18 is an important provision and merits setting out in full.

“(1)

This rule applies to the determination of the officer-holder's remuneration in an administration.

(2)

It is for the committee to determine the basis of remuneration.

(3)

If the committee fails to determine the basis of the remuneration or there is no committee then the basis of remuneration must be fixed by a decision of the creditors by a decision procedure except in a case under paragraph (4).

(4)

Where the administrator has made a statement under paragraph 52(1)(b) of Schedule B1 that there are insufficient funds for distribution to unsecured creditors other than out of the prescribed part and either there is no committee, or the committee fails to determine the basis of remuneration, the basis of the administrator's remuneration may be fixed by—

(a)

the consent of each of the secured creditors; or

(b)

if the administrator has made or intends to make a distribution to preferential creditors—

(i)

the consent of each of the secured creditors, and

(ii)

a decision of the preferential creditors in a decision procedure.”

On Mr Harty’s case, this rule applies to the determination of the basis of the administrator’s remuneration for realising security subject to a fixed charge (either with the security-holder’s consent or following a paragraph 71 order). It must follow, on that case, that this is so even if there is no prospect of a surplus after the secured debts are satisfied (so that the secured creditor is bearing all of the realisation risk); or only a minimal surplus on an optimistic disposal, with the security-holder carrying by far the greater realisation risk (e.g. where the asset is estimated to achieve between £8m and £10.5m and the amount of the secured debt is £10m).

The decision-making structure under Rules 18.17 and 18.18 is, in my view, fundamentally inconsistent with Mr Harty’s case that it governs an administrator’s remuneration for realising assets held under a fixed charge to be paid from the proceeds of sale of assets subject to that charge. In circumstances in which there will be some form of distribution to unsecured creditors, the security-holder is excluded from any decision as to the basis of remuneration, even though this a normal right of such a security-holder, and the economic risk of the final amount realised may principally be borne by the security-holder. It also shuts the security-holder out from seeking what it believes to be the preferred basis of remuneration (which might have implications for the timing of any sale as well as the net proceeds).

Mr Harty’s answer to this was to point to Rule 18.18(4). This provision, which has no counterpart in Rule 18.17 in any event, applies where there will be no distribution in any amount to unsecured creditors other than from the “prescribed part” (i.e. from assets subject to a floating charge) and there either is no creditors’ committee (as may well, but not necessarily, be the case) or the committee has failed agree the basis of remuneration. That presupposes:

While on Mr Harty’s case, the fixed security-holder will have a voice in fixing the basis of the administrator’s remuneration in this scenario (provided that there is no creditors’ committee which itself determines the basis of remuneration), each floating-chargee will have an equal voice, even in a case where the potential surplus above the secured debt is small, and the risks of realisation may be principally borne by the holder of the fixed security (cf. the example above). Where the surplus above the debts secured by the fixed charge will involve payment to preferred creditors, the influence of the fixed charge-holder is further diluted by the need for the support of the preferred creditors in a decision-committee.

In reply, Mr Harty skilfully deployed scenarios which, he said, showed that the provision worked in a sensible fashion on his construction of Part 18. I was not ultimately persuaded that even his examples sufficiently justified the degree of attenuation of the security-holders’ rights. However, even if there are instances when Rule 18.18 might operate sensibly on the Appellants’ construction, in my view a surer guide to the intended operation of Part 18 is the immediate impression the decision-making process in Part 18 gives. That strongly suggests that the remuneration being addressed in Rule 18.18(2) is that which will be paid form the company’s assets without the benefit of the prescribed part, and Rule 18.18(4) remuneration which would fall to be paid from the prescribed part, at which point the floating charge-holders whose economic interests are engaged come to the fore.

I would also note that if similar issues arose in relation to liquidators in a winding-up or a trustee in bankruptcy (i.e. as to their remuneration for realising property subject to a fixed-charge), there is no equivalent to Rule 18.18(4) in Rules 18.20 and 18.21.

Under Rule 18.23, if the basis of an administrator’s remuneration is not fixed by Rules 18 to 20, the administrator must apply to the court for it to be fixed. Rule 18.24 allows an administrator who considers the rate or amount of remuneration to be insufficient or the basis fixed to be inappropriate to request an increase from “the creditors” (Rules 18.25 to 18.27) or the court (Rule 18.28). These provisions raise similar issues in relation to the decision whether or not to approve an increase or change of basis as were addressed in connection with Rule 18.18, as does the review provision (Rule 18.29); the provision for drawing in excess of an estimate (Rule 18.30) and the provision regulating the apportionment of set fees (Rule 18.32).

That brings us to Rule 18.34 which provides:

“18.34.— Remuneration and expenses: application to court by a creditor or member on grounds that remuneration or expenses are excessive

(1)

This rule applies to an application in an administration, a winding-up or a bankruptcy made by a person mentioned in paragraph (2) on the grounds that—

(a)

the remuneration charged by the office-holder is in all the circumstances excessive;

(b)

the basis fixed for the office-holder's remuneration under rules 18.16, 18.18, 18.19, 18.20 and 18.21 (as applicable) is inappropriate; or

(c)

the expenses incurred by the office-holder are in all the circumstances excessive.

(2)

The following may make such an application for one or more of the orders set out in rule 18.36 or 18.37 as applicable—

(a)

a secured creditor,

(b)

an unsecured creditor with either—

(i)

the concurrence of at least 10% in value of the unsecured creditors (including that creditor), or

(ii)

the permission of the court, or

(c)

in a members' voluntary winding up—

(i)

members of the company with at least 10% of the total voting rights of all the members having the right to vote at general meetings of the company, or

(ii)

a member of the company with the permission of the court.

(3)

The application by a creditor or member must be made no later than eight weeks after receipt by the applicant of the progress report under rule 18.3, or final report or account under rule 18.14 which first reports the charging of the remuneration or the incurring of the expenses in question (“the relevant report”).”

Against the legal framework and statutory background I have set out, in my view the Judge was clearly correct to conclude that the “remuneration” with which Rule 18.34 is concerned is that payable to the administrator in respect of the administration assets as part of the insolvency process, from the company’s assets as statutorily enlarged by the assets which are subject to a floating charge. This provides a much better fit with the structure of English insolvency law so far as relevant to this application, the scheme of the 2016 Rules more generally, and the specific operation of Part 18. In respect of all of the provisions of Part 18 which Mr Harty contends curtail the security-holder’s natural rights in relation to the realisation of assets subject to a fixed-charge, I would look for some positive language that this was intended. Not only is there none, but Part 18 would work in a wholly surprising and uncommercial way if Mr Harty’s construction was right.

I should deal briefly with the textual support which Mr Harty says he does get from Rule 18.34:

Finally, there is Rule 18.38, which offered something for both sides, but rather more for Mr Weaver KC. It provides:

“(1)

A liquidator or trustee [an administrator is not mentioned] who realises assets on behalf of a secured creditor is entitled to such sum by way of remuneration as is arrived at as follows, unless the liquidator or trustee has agreed otherwise with the secured creditor—

(a)

in a winding up—

(i)

where the assets are subject to a charge which when created was a mortgage or a fixed charge, such sum as is arrived at by applying the realisation scale in Schedule11 to the monies received in respect of the assets realised (including any sums received in respect of Value Added Tax on them but after deducting any sums spent out of money received in carrying on the business of the company),

(ii)

where the assets are subject to a charge which when created was a floating charge such sum as is arrived at by—

(aa) first applying the realisation scale in Schedule 11to monies received by the liquidator from the realisation of the assets (including any Value Added Tax on the realisation but ignoring any sums received which are spent in carrying on the business of the company),

(bb) then by adding to the sum arrived at under sub-paragraph (a)(ii)(aa) such sum as is arrived at by applying the distribution scale in Schedule 11 to the value of the assets distributed to the holder of the charge and payments made in respect of preferential debts; or

(b)

in a bankruptcy such sum as is arrived at by applying the realisation scale in Schedule 11 to the monies received in respect of the assets realised (including any Value Added Tax on them).

(2)

The sum to which the liquidator or trustee is entitled must be taken out of the proceeds of the realisation.”

The opening words, with the reference to a liquidator or trustee realising security “on behalf of a secured creditor”, and excluding the application of Rule 18.38 from cases where the office-holder and secured creditor have agreed some alternative, reinforces my view that Part 18 is not to be interpreted on the basis that remuneration for office-holders who have agreed contractual rates with fixed-charge holders for realising their security falls within provisions such as Rules 18.16 to 18.37.

In addition, I agree with Mr Weaver KC that where there is no such agreement, Rule 18.38 contemplates the application of Schedule11 rates, not the operation of the Part 18 procedure for fixing by the creditors’ committee, a right to seek increases and decreases etc. While Mr Harty suggested that the Schedule 11 rates ought to be capable of being displaced by applications under the earlier rules of Part 18 (with the liquidator or trustee being entitled to apply to under Rule 18.24 and the general creditors being entitled to seek a reduction under Rule 18.34), that would appear to be inconsistent with the terms of Rule 18.38, and with the deployment of Schedule 11 as “remuneration of last resort” in Rule 18.22.

Mr Harty suggests that the use of the word remuneration in Rule 18.38 to refer to sums incurred in realising security which does not form part of the company’s fund as statutorily enhanced suggests that the word “remuneration” has the same meaning elsewhere in Part 18. However, that argument proves too much. “Remuneration” in Rule 18.38 is limited to sums coming out of the assets realised (Rule 18.38(2)) and does not, for example, involve applying Schedule 11 rates to Rule 18.16 remuneration. Mr Harty does not suggest that limited meaning carries over to the rest of Part 18. In each case, the issue of what remuneration means depends on the context in which it appears.