Tuesday, July 10, 2012

Section 98 meeting – disclosure of information about pre-appointment costs

Paragraph 23 of the current version of SIP 9 makes it clear that the principles contained in the SIP apply equally to the approval of pre-appointment costs and post-appointment remuneration.  Whilst this has clearly been picked up as applying in Administrations, we are finding that it is sometimes over-looked in CVLs in respect of statement of affairs and section 98 meeting fees.

Where a resolution is being sought at the section 98 meeting for the approval of a statement of affairs fee and/or section 98 meeting fee, then details of what has been achieved and how it was achieved must be disclosed to that meeting.  The easiest way to do this is to include in both the section 98 script, if one is used, and the minutes of the meeting, some standard wording about generic actions that always have to be undertaken in all cases.  That could include reference to extracting information about assets and liabilities from the company’s accounting records, assisting the directors in drafting a report for creditors, and assisting the company secretary in convening the meetings of members and creditors.   There will often also be some case specific work undertaken, such as liaising with a petitioning creditor, dealing with the landlord, or speaking to a sheriff’s officer, and information about such case specific actions should also be included.  

In addition, if any of the pre-appointment work has been sub-contracted then the section 98 meeting must also be provided with details of that that work, who did it and the amount paid to them.

Finally, what disclosure needs to be made if a resolution for the approval of the pre-appointment fees is being sought on a time cost basis? We have already pointed out that paragraph 23 applies the same principles to the approval of remuneration for pre-appointment work as to post appointment remuneration, and paragraph 12 makes it clear that where approval of post appointment remuneration is being sought on a time cost basis at a time when post appointment work has already been carried out on the insolvency case, then information about those time costs should be provided to creditors.  As a result, in view of the interaction between those two paragraphs we consider that where a resolution is being sought at that meeting approving payment of pre-appointment fees on a time cost basis details of the time units used, the charge out rates for all grades of staff involved, the time spent, the charge-out value, and the average charge-out rate should be disclosed to the section 98 meeting.  Our interpretation of the interaction between paragraphs 23 and 12, and hence the need to make such disclosure about time cost information, is by no means certain, but making the disclosure is a risk averse approach that means there is no doubt that you would be complying with SIP 9.

The disclosure indicated above need not be made to the creditors if the pre-appointment fees have been paid pre-appointment by the company, a director or a third party, or are to be paid post appointment by a director or a third party.  Remember though that if the director or a third party is merely providing a deposit for pre-appointment costs and they will be repaid if sufficient realisations are made from the company’s assets then a resolution is still required at the section 98 meeting to allow that repayment to be made, and as a result the disclosure mentioned above is required.