We have noticed that technical issues in insolvency are a bit like buses and this article arises from a little run of queries we have had this week. Another one has just arrived, as I was reviewing this before posting it.
We think that the Insolvency Service forgot to mention section 137 when they drafted the transitional provisions for the Insolvency (Amendment) Rules 2015 (“new fee rules”). They stopped short of admitting that in Dear IP 68, issued last September, when they said, “There are no transitional provisions that apply where a liquidator is appointed in a compulsory liquidation by the Secretary of State under s137. The effect of this is that the new provisions will apply to existing, pre-October appointments, where the basis of remuneration is fixed or changed after 1 October 2015; as well as to new appointments post 1October 2015. For cases where the basis is set before 1October 2015 the new rules will not apply and there will be no requirement to provide creditors with an estimate.”
It seems that section 137 was not the only one that squeezed past the drafters’ eagle eyes, as we have now noticed a problem with successor CVL appointments.
The transitional provisions in the new fee rules say (for liquidations):
15.—(1) The amendments made by Rules 2 to 12 and Rule 14 apply where—
…
(b) a liquidator is nominated under section 100(2), or 139(3) of the Act (a),
(c) a liquidator is appointed under section 139(4) or 140 of the Act,
(d) a person is directed by the court or appointed to be liquidator under section 100(3) of the
Act,
(e) a liquidator is nominated or the administrator becomes the liquidator under paragraph
83(7) of Schedule B1(b) to the Act, or
…
on or after 1st October 2015.
The problem is that when a replacement IP is appointed in a CVL, whether by a meeting of creditors, or by the court, it is not under one of the quoted sections.
One interpretation is that the old liquidator was appointed under section 100(2), so “a liquidator” has been appointed, making it an “old fee rules” case. It could then be that the new liquidator’s successor appointment makes no difference and it remains an old rules case. Rule 4.131B, which applies for post April 2010 cases, makes it clear that the new liquidator can rely on the fee resolution of the old liquidator. In pre-April 2010 cases, whether the new liquidator can rely on the old liquidator’s fee approval will come down to the wording of the resolution obtained by the old liquidator (i.e. is it specific to them, or does it just refer to “the liquidator”) and whether the new liquidator should limit their fees to the charge-out rates applicable at the time of approval (i.e. does it just refer to time costs generally, or does it link the approved time costs to some sort of disclosure or report issued with the fee request).
The other interpretation is that although the old liquidator was appointed under section 100(2), the new liquidator’s subsequent appointment will have been by Court Order under section 108, or by a resolution of the creditors under section 104, neither of which is mentioned in the transitional provisions. The Court Orders in the cases we have seen did not state under what authority the appointment is being made, but the application for the appointment may shed some light on this. It appears that section 108 is the most likely candidate, but it may even be a block transfer under rules 4.7A to 4.7D, which are also not mentioned in the transitional provisions.
Let’s assume that the new liquidator was appointed under section 104 or 108 or the rules, and the logic about “a liquidator” being appointed under section 100(2) above does not work. Let’s also assume that the case is too old for rule 4.131B to come to the rescue and allow you to rely on the earlier liquidator’s fee basis. In that case, then because sections 104 and 108 and rules 4.7A et al are not mentioned in the transitional provisions, the new fee rules would apply to the new liquidator’s appointment. This is according to the same logic used by the Insolvency Service in respect of compulsory winding up appointments under section 137 that they (
Remember that it will also be an issue in post April 2010 cases, since whilst you can rely on rule 4.131B to apply the same fee basis as the outgoing liquidator, what happens if you want to change the basis? Or indeed if your charge out rates are higher than those of the outgoing liquidator and you don’t want to take the risk averse approach of just applying those charge out rates rather than your own? According to the Insolvency Service’s instructions for section 137 cases, you need to apply the new rules if you want to change the basis or seek an increase.
When this first came up, we thought it was a flash in the pan and just dealt with it as in interesting technical query to mull over in theory. Now that it has come up four days running, we have decided that we’d better say something.
We find the idea that more and more cases could be caught by the new fee rules by default a little unsatisfactory, but we are also not really comfortable with the idea that the appointment of “a liquidator” under section 100(2) would bind the case into the “old fee rules”. The only way that we can think of getting a definitive answer is to seek a legal opinion or go back to Court for clarification in cases where you have already been appointed. In the latter situation, we would not even be surprised if the court took a different approach. They could say that because the transitional provisions state when the “new fee rules” apply, then for sections 137, 104, 108, and any others that have been missed out, the “new fee rules” simply do not apply at all. For future cases then, anticipate the problem and try and get something built into the Court Order dealing with the liquidator’s remuneration, particularly in pre-April 2010 cases, or ask the Court for a ruling on the issue.
