Wednesday, April 12, 2017

ADM to CVL or CWU fees

Although this is a technical point, it is fee related and therefore important.

Rule 18.20 (4) says that where you convert to CVL under paragraph 83, or you are appointed CWU liquidator under section 140(1) in a case where you were administrator immediately before, the “basis of remuneration fixed under rule 18.18 for the administrator is treated as having been fixed for the liquidator”.

That means that when you are seeking your fee approval as administrator, you must make provision for any potential succeeding CVL or CWU. Note that you are not seeking a separate basis for your remuneration for the liquidator, because the liquidator’s remuneration is the basis fixed for the administrator. However, you will need to ensure that your basis as administrator makes allowance for the potential work in the liquidation. If you seek time costs as administrator, you will need to include the time that you expect to spend as liquidator in your administrator’s estimate, explaining why you are doing so. If you seek a fixed fee or a percentage basis as administrator, you must allow for the potential extra cost of the liquidation, explaining why the fixed fee or percentage basis chosen is fair and reasonable and referring to the future liquidation.

If you have your remuneration basis fixed in the ADM and you find that it is too low, you can ask for an increase under rules 18.24 to 18.28. Those with large or protracted cases might need to be aware of the exception in rule 18.27, which says that if your basis was fixed by a committee in the prior ADM, you sought an increase and you then switched to CVL or CWU and then want a further increase in the liquidation, you can only get it by applying to court.

There is one final wrinkle, which could be significant. The New Rules generally apply with retrospective effect. The transitional provisions in Schedule 2 completely exclude pre-September 2003 ADMs and apply the 1986 rules. They also apply the pre-1 October 2015 version of 1986 Rules to all ADMs and CVLs where the administrator or liquidator was appointed before the commencement of the 2015 Rules, i.e. 1 October 2015. That means that for appointments on or after 1 October 2015, with retrospective effect, the remuneration of anyone appointed in a CVL under paragraph 83 after being administrator, or in a CWU by the court immediately on discharge of an ADM where they were administrator, is now that fixed for the administrator. If you intended to seek fee approval in the liquidation, you cannot. You can only seek an increase to the administrator’s fee basis. This may seem like semantics, but it could be significant when looking at the validity of fees, so you will need to take extra care to word any requests for fee approval as increases in such circumstances.