ComplianceOnCall
As a result of issues raised with us during visits we have recently sought the views of the Insolvency Service on a number of questions:
Is deemed approval of remuneration possible in administrations?
We enquired about the interaction between rule 2.106 relating to the fixing of the administrator's remuneration and rule 2.33(5) allowing deemed approval of the administrator's proposals. As a result of this can an administrator obtain deemed approval for their remuneration? The answer received is no. The interrelationship between rules 2.33(5) and 2.106 is such that the requirements of 2.106 are not disapplied. If they were, there would be no need for rule 2.106(5)(A).
Prescribed part expenses
What remuneration and expenses an administrator can deduct when calculating the prescribed part? We asked whether he can deduct his general remuneration or only remuneration relating to the protection and realisation of floating charge assets and assets not caught under either a fixed or the floating charge. The answer received was that it is only remuneration relating to the protection and realisation of floating charge and assets not caught under either a fixed or the floating charge that can be deducted by an administrator calculating the prescribed part.
Clearly similar considerations will also apply to liquidators.
Situations where there is more than one floating charges and the prescribed part
We also enquired about the position where there is more than one floating chargeholder, and there are insufficient floating charge assets to pay the first chargeholder in full, such that the second and subsequent chargeholders will receive no distribution from floating charge assets. In such circumstances can those second and subsequent floating chargeholders participate in the prescribed part under section 176A? The response received was that floating charge holders who do not receive a distribution from the charged asset can participate in a distribution from the prescribed part without formally surrendering their security.
Again, similar considerations will apply in liquidations.
Do the principles in Leyland Daf apply where there is a charge but no indebtedness?
Finally, we enquired about the application of the principles in Leyland Daf to case where a floating charge exists at the passing of the winding up resolution at the EGM, but where there is no indebtedness under the charge at that time. Does Leyland DAF apply? Does the very existence of a charge create a floating charge fund such that Leyland DAF applies; or does there have to be some indebtedness under the charge to create the floating charge fund, and in the absence of such indebtedness then the assets are free assets such that Leyland DAF does not apply? The response received is that in their view Leyland Daf does not apply where there is no indebtedness under the charge.
There is a caveat to these responses in that these are only the views of the Insolvency Service on the insolvency legislation and they have not been tested before the courts. Having said that, it would be very hard to criticise any IP who follows the views of the body that sponsored the legislation and who acts as the profession’s regulator of regulators.
