IP Briefing : Reset Remuneration : The Reporter’s Role?
Regular readers will know that Scotland’s unique system of fixing office holder remuneration has generated varied, and sometimes hard to reconcile, decisions about the role of the Reporter in relation to fees being fixed in liquidations and administrations.
The opinion of Lord Braid in the Petition of The Former Joint Administrators of Future Renewables Eco plc is required reading for any officeholder with cases in Scotland.
The Directors of the company in administration appointed Administrators in September 2021. Creditors had concerns around the petitioners’ appointment and the petitioners were, by decision of the creditors, replaced by new Administrators in November 2021. There was no dispute that the former Administrators were entitled to remuneration for their period in office but their claim of around £300,000 of fees and £94,000 of outlays was disputed on behalf of the creditors by the new Administrators.
A remit was made by the court to a Reporter as normal. He recommended a reduction of over 20% to the fee and approved the outlays in full. The Auditor conferred with him and came to the same view. This was challenged by the new Administrators.
A number of points are worth noting :-
1. Lord Braid decided that the Court simply had to take the Reporter’s report into account as an important factor, carrying considerable weight, when fixing the appropriate level of remuneration and outlays; but ultimately remuneration awarded was the Court’s own decision;
2. A significant amount of the outlays were legal fees that had not been taxed on the basis that these were category one expenses in terms of SIP9 (Scotland); and therefore said to be capable of being incurred without approval. Lord Braid decided the Reporter had fallen into error by not making any enquiry into whether the legal fees were “reasonably incurred.” The issue was therefore remitted back for the legal fees to be taxed and for the Reporter to consider further whether the legal fees were reasonably incurred in the Administration;
3. The Reporter had not been given details of the pre-appointment work by the former Administrators. Again this issue was remitted back so the Reporter could make more complete enquiries; and
4. Lord Braid was perhaps most concerned about post administration work where the former Administrators claimed around £70,000 of fees for the period after the new Administrators were appointed. This was also remitted to the Reporter so he could consider what extent of the work provided value to the Administration.
The Court also expressed concern that the Reporter mentioned having discussed his proposed abatement with the former Administrators. We suspect that is quite common in remuneration applications. The Court, however, made clear that it considered that to be inappropriate in contested remuneration applications.
Insolvency Practitioners acting as Reporters will have to be careful to ensure they have made appropriate enquiries as to costs being reasonably incurred in the sense of providing value to the Administration. The court’s decision further opens the door to arguments about the extent of the Reporter’s remit potentially going further than RPBs’ suggested checklists. It remains to be seen if there will be further judicial commentary on this case.
BBM Solicitors specialise in advising IP’s in both contentious and non-contentious matters (including transactional work). Contact: Eric Baijal (firstname.lastname@example.org).This briefing note is current as at 26 April 2023 and is our understanding of the position described at that date. Legal advice ought to be taken before relying on its terms (particularly to ensure the law has not changed).