Approval of Fees in Administration
New rules, which came into force on 6 April 2006, have made significant amendments to the procedure to be followed by administrators wishing to have their remuneration and outlays fixed. These rules apply with immediate effect and apply to all assignments where the company went into administration on or after 15 September 2003 i.e. to all post Enterprise Act administration cases.
The new rules
Under the previous rules, the legislators, in typical fashion, adopted the rules applying to liquidations and applied these to administrations. This meant that in the absence of a creditors' committee, it was necessary to apply to the court to have remuneration fixed and outlays approved.
The Insolvency (Scotland) Amendment Rules 2006, have introduced new Rules 2.39 and 2.39A and streamlined the procedure, leaving the decision for approval with a creditors meeting, in the absence of a creditors' committee.
The procedure for approving remuneration is now as follows:
- Within 2 weeks of the end of the accounting period an account of intromissions and a claim for outlays and remuneration must be submitted to the creditors' committee for audit. This must be accompanied by a scheme of division where there are funds available to permit a distribution.
- If there is no creditors' committee these documents must be submitted to a meeting of the creditors
- The committee or the creditors have a period of 6 weeks to audit the accounts and issue a determination fixing the outlays and remuneration payable to the administrator
- It is competent to make a claim for interim remuneration prior to the expiry of the accounting period
- If the administrator is dissatisfied with the amount fixed by the committee he can request that it be increased by a resolution of the creditors at a meeting
- If the committee fails to issue a determination within the 6 week period, the claim can be submitted to a meeting of the creditors
- If the meeting of the creditors fails to issue a determination, the claim can then be submitted to the court
- In the absence of a creditors' committee and in cases where there is not going to be any distribution to the unsecured creditors, except via the prescribed part, the remuneration and outlays will have to be approved by each secured creditor and 50% of the preferential creditors where a dividend is to be paid to preferential creditors
- An appeal against the remuneration fixed by the committee or by the creditors' meeting will then lie to the court.
The new rules, although over two years overdue, are better late than never! Given the stated aim of reducing court involvement and taking administrations out of the courts, it was surprising that the court had been left with such a critical role in fixing remuneration in the absence of a creditors' committee. In order for practitioners to gain the benefit of the cost savings of lesser court involvement it will be necessary to ensure that a committee of creditors is appointed in each case wherever possible, although practitioners are reminded of the provisions in paragraph 58 of Schedule B1, which permit meetings of creditors to be held by correspondence.