Creditors have the right to challenge the remuneration and expenses of appointed administrators through the Court. There is a procedure set out in Rule 2.109(1B) Insolvency Rules including a time limit by which such a challenge should be made.  The Court has a discretion to extend the time limit but in what circumstances will the Court exercise its discretion?

In what appears to be the first reported decision on these issues, the High Court recently considered the interpretation of Insolvency Rule (“IR”) 2.109(1B) in a challenge to the remuneration and/or expenses of the administrators as excessive in the case of Re Calibre Solicitors Ltd (in administration). The question was whether that application could suffice to challenge remuneration charged both under the administrators’ first progress report and the second progress report, or whether a second application and an extension of time were required.

Background

IR 2.109(1B) provides that an application to challenge remuneration and/or expenses as excessive:

“must, subject to any order of the court under Rule 2.48A(4), be made no later than 8 weeks after receipt by the applicant of the progress report which first reports the charging of the remuneration or the incurring of the expense in question”.

IR 2.48A(4) applies to an application by a creditor for further information about remuneration or expenses. No such application had been made in this case.

Within 8 weeks of receiving the administrators’ first progress report dated 6 September 2013, the creditor issued an application pursuant to IR 2.109 to challenge the remuneration and expenses charged under that report as excessive. Although the creditor issued a second application to challenge the remuneration and expenses charged under the administrators’ second progress report dated 5 February 2014, this application was issued well outside the 8-week time limit.

The issues

The Registrar had to decide three issues:

1. whether a second application was required to challenge the remuneration and expenses charged under the second progress report – interpretation of IR 2.109(1B);

2. if the second application was not necessary, whether he had power to extend time for the second application under IR 12A.55 (Computation of Time and Time Limits); and

3. if so, whether he should use his discretion to extend that time.

The decision

The Registrar held:

1. The second application was necessary to contest the administrators’ remuneration and expenses charged under the second progress report. The proper construction of IR 2.109(1B), supported by the wording in IR 2.109(1A), refers to remuneration being “charged” and expenses being “incurred”, representing already incurred or charged expenses and remuneration. As such, the Registrar concluded that a fresh application was required in respect of each progress report.

2. The purpose of the 8-week time limit was to give certainty to administrators and creditors within a short time scale. However, despite the importance of this provision, expressed in mandatory terms (using the word “must”), the Registrar concluded that he had the power to extend time for the second application under IR 12A.55(2).

3. As the principles of challenge were the same in each application, bearing in mind the principles in the recent Court of Appeal decision in Denton v TH White Ltd and another [2014] and in all the circumstances, the Registrar decided it was appropriate to grant an extension of time.

Practical lessons

This decision confirms that the Courts should apply the ordinary meaning of the wording of IR 2.109(1B) and IR 12.55(2). However, if the time limit prescribed by IR 2.109(1B) is overlooked, then an application can be made for an extension of time. Of course, whether an extension will be granted will depend on the facts; however, an important issue is whether the application will considerably delay determination of the level of the officeholder’s remuneration and expenses.