Friday, March 04, 2016

Time costs under the new fee rules

From what we have seen in the new fee rule approvals that we have reviewed to date, the most common area for deficiencies at present is in the narrative description of work undertaken/to be undertaken, the reasons why it has been/will be required, etc. that is required by paragraph 9 of the revised SIP 9. However, we have also noticed, in our travels, a little wrinkle in the wording of the legislation that could cause you a problem.

The problem arises in rules 2.106(2A), 4.127(2A) and 6.138(2A). They are all, essentially, the same wording (with the bankruptcy version even mentioning “each creditor of the company"!), so I have quoted directly from the liquidation rules and you will see that the same point applies across administrations and bankruptcies. Rule 4.127(2A) says:

(2A) Where the liquidator proposes to take all or any part of the remuneration on the basis set out in paragraph (2)(b), the liquidator must, prior to the determination of which of the bases set out in paragraph (2) are to be fixed, give to each creditor of the company of whose claim and address the liquidator is aware –
(a) a fees estimate, and
(b) details of the expenses the liquidator considers will be, or are likely to be, incurred.

The highlighting is our emphasis, as it is on this phrase that the potential problem hangs. If you want any element of your fees to be on a time costs basis, whether you are seeking approval at the start of the case, or considering that you might need it later, say for investigations, you need to do the fee estimate before you seek approval for any bases. You cannot start out just seeking a fixed fee and then go back for time costs on a new aspect of the case.

We have seen all sorts of combinations being used under the new fee rules, with some using only a fixed fee, others using a fixed fee for some tasks and a percentage basis for others, some sticking to time costs, and some using a mixture of all three bases. We have already had a couple of queries about seeking an increased fee, usually, to date, where an initial fixed fee has proved inadequate. In that situation, if you only initially sought fixed fee approval, you cannot switch to time costs or add a time costs element, so the only way that you can get an increase is if there has been a “material and substantial change in the circumstances which were taken into account in fixing it” (Rules 2.109A, 4.131A and 6.142A). You could then increase the fixed fee, or even switch to a percentage basis, but you cannot revert to time costs because of the way that rules 2.106(2A), 4.127(2A) and 6.138(2A) are worded. 

We think that some IPs may have missed this and have tried, or intend to try, to switch to time costs in the course of an appointment. If you are one of those IPs, this notice gives you a chance to take corrective action. The simplest solution, in open cases, will be to refund the incorrect fee and seek alternative approval that is not based on time costs, such as a further fixed fee or an element of percentage based fees. In closed cases, given that you can show what the creditors “approved” and this is a technicality that would be quite costly to overcome, potentially requiring a court application, restoration, re-closure, etc., we think you could just put a note acknowledging it on the file. Hopefully, with it being very early days, there will not be many cases where it cannot be addressed.