FINAL PROGRESS REPORT OF THE FORMER ADMINISTRATOR FOR THE PERIOD FROM 13 MARCH 2015 TO 17 JULY 2015

Transcription

1 HAVEN CREDIT UNION LIMITED - IN CREDITORS VOLUNTARY LIQUIDATION (FORMERLY IN ADMINISTRATION) FINAL PROGRESS REPORT OF THE FORMER ADMINISTRATOR FOR THE PERIOD FROM 13 MARCH 2015 TO 17 JULY 2015 REPORT DATED 24 JULY 2015 Midlands Business Recovery Alpha House Tipton Street Sedgley West Midlands DY3 1HE Freephone: angela@in-solve-ncy.co.uk

2 REPORT CONTENTS Section Pages 1 Introduction 3 2 Background and events during the administration 3 3 Summary of my proposals and meetings of creditors and members 4 4 Receipts and payments summary 6 5 Statement of Affairs 6 6 Administrator s remuneration and expenses 7 7 Investigation into the conduct of the directors 9 8 Other information 9 9 Conclusion 10 Appendices 1 Statutory and other information 11 2 Summary of the Administrator s Receipts and Payments 13 3 Directors statement of affairs 14 4 Summary of the former Administrator s time costs from 13 March to July MBR fees and expenses policy 17 6 Guidance on questioning an administrator s fees and expenses 18 7 The ICAEW s guide to creditors on administrators fees and expenses 20 Abbreviations used in this report: Haven Credit Union Limited Insolvency Act 1986 Insolvency Rules 1986 The former Administrator s Proposals dated 21 April 2015 Midlands Business Recovery Schedule B1 of the Insolvency Act 1986 Financial Services Compensation Scheme Institute of Chartered Accountants in England & Wales HCU or the Credit Union IA86 IR86 proposals MBR SchB1 FSCS ICAEW 2

3 1 Introduction In the UK how formal insolvencies are conducted is governed largely by the IA86 and IR86 but in the case of credit unions there is a good deal of additional legislation that applies because of the entities regulated status. The combination of all the legislation imposes on the insolvency practitioner a good many major reporting and administrative duties which are cumbersome but unavoidable. A key component to credit union insolvencies is the obligation for regular communication with the members and regulatory bodies. The IA86 imposes an obligation on me to supply you, whether you are a trade creditor or a creditor saver with a final progress report explaining what has gone on in the administration. This is that report and by law it has to be sent to you soon after the exit of the Credit Union from administration into liquidation, which happened on 17 July The legislation setting out what I must supply in this report is largely set out in Rules 2.47 and of the IR86. Rule 2.47 sets out what I must supply in all progress reports, whether final or not, and therefore will include some information that you have already received in the proposals, I am sorry for that. Rule sets out what I should include in my final progress report. It requires that I provide you with a summary of the following: 1. My proposals; 2. Any major amendments to or deviations from the proposals; 3. The steps taken during the administration. 4. The outcome of the administration. This report is a summary only. If you should like more detail on events prior to the administration or early on in the administration, these can be found in my proposals report dated 21 April A copy of that report can presently be found on my website at where you should click on the red link entitled pdf copy of the final proposals report. Alternatively if you would like a hard copy of the proposals to be sent to you by post or , please don t hesitate to call, or write to me using the contact details on the front of this report. I have attached at Appendix 1 some of the more detailed information I am required by law to give you. To set this report in context, I first need to summarise the events before and during the administration. 2 Background and events during the administration HCU is a not for profit Registered Society which provided credit union services to the general public in Pembrokeshire. In common with all credit unions, it was, and remains, subject to a good deal of regulation, which in recent years provided for minimum solvency ratios to be maintained, failing which the regulator could take control and close down the credit union. Small, geographically based credit unions across the UK have come under greater financial pressure in recent years for a variety of reasons and HCU was no exception. It increasingly found itself at a massive commercial disadvantage to its competitors, particularly the payday lenders and banks, who seem to enjoy far easier and wider access to the market, less regulation and can, unlike credit 3

4 unions, effectively charge what they like with impunity. It also saw its income from interest received on cash balances it had invested but couldn t safely lend out fall, flat levels of grant income, and larger bad debts as borrowers themselves came under increased financial pressure. When the Credit Union was told it needed to meet the new minimum solvency ratios, the board set about exploring a range of avenues to increase income and improve the balance sheet. After several years of struggle and endeavour, it became clear that all the available options had been exhausted and the board were told by the regulator that unless they were to put the Credit Union into administration, they, the regulator, would. The board chose to appoint me as administrator, and my appointment was confirmed by the court on 13 March Within a few days of that appointment, the FSCS, whose role is to provide a compensation fund of last resort in times of financial services company insolvency, had written to HCU s savers to reimburse them for their savings, in doing so making itself the Credit Union s biggest creditor. Today, more than 4 months on, a small proportion of the Credit Union s 1,400 savers are yet to cash in their payments from the FSCS, such that I have recently felt it necessary to place an advertisement in the local press to encourage them to contact me urgently to ensure they get their money back. Prior to administration the Credit Union had held talks with 3 potential merger partners. No merger proved possible, I believe primarily due to the incidence of potentially latent bad debts in the loan book. I rekindled discussions with those credit unions after I had been appointed as administrator, my aim being to explore whether by selling the part of the loan book that was performing well I could both maximise realisations net of costs and ensure there remained a credit union offering in the area. Following negotiations, on 31 March 2015 I sold the Credit Union s performing loan book to a neighbouring credit union, Saveeasy, selling 80,000 of loan debt for 40,000 - having dealt with an insolvency of a credit union I was very aware of the problems and costs an insolvency practitioner with no ongoing relationship with borrowers has collecting loan repayments. Going forward, acting as liquidator, I will be looking to collect in the remaining older, non-performing loan debts. Under insolvency law, each administration must have a principal purpose a clear purpose to be achieved. In this case the principal purpose was to achieve a better result than could be obtained had the Credit Union gone straight into liquidation. This purpose was achieved in the first few weeks of the administration because the significant costs of an immediate liquidation were avoided and I was able to secure an early sale of the loan book. Once the principal purpose was achieved, it then became appropriate for the Credit Union to exit from administration, in this case in to liquidation in order to enable a distribution to be paid to creditors. In late April I sent my proposals to the creditors and members, calling meetings to be held on 20 May, making available a copy of a report (my proposals) to them, summarising my actions to date, asking for the basis of my costs to be agreed, and raising for their consideration what I believed should be done going forward. The contents of those proposals and how creditors and members voted is summarised in the next section. 3 Summary of my proposals and meetings of creditors and members My proposals covered 5 main areas: 1. An explanation of the events of the period leading up to the administration; 2. A summary of the action I had taken as administrator up to 21 April 2015 (the date when I finalised my proposals); 4

5 3. A recommendation as to how I believed the Credit Union should best exit administration; 4. A request to the creditors to set the basis of my fees and expenses both as administrator and liquidator. 5. Notices of meetings of creditors and members. By late April when the proposals were made available or sent to the creditors and members, the vast majority of the members savings had already reimbursed by the FSCS and the performing part of the loan book sold. That is to say, a good proportion of the hard practical work outside of the formal reporting and statutory matters was done. And the principal purpose of the administration had been achieved. In the proposals I explained that, in theory, there could be 7 different exit routes from administration, but that in this instance, because there would be a dividend paid to the unsecured creditors, I believed a creditors voluntary liquidation was the most appropriate route. In the report I also set out a great deal of information in respect of my time costs and expenses, all of which is a requirement of my governing body and is aimed at enabling those parties interested in the outcome to make a proper, informed decision. If you would like a full hard copy of my proposals, please let me know, I will be glad to send them to you. In my proposals I sought approval for the following matters: 1. That the Credit Union should exit the administration and go into creditors voluntary liquidation as soon as possible, with me appointed as liquidator; 2. Setting my remuneration as administrator, and also if subsequently appointed as liquidator, on a time costs basis in accordance with my firm s statement of policy on the matter; 3. Setting my expenses as administrator, and if subsequently appointed as liquidator, on the basis set out in my firm s statement of policy on the matter. The meeting of creditors held on 20 May went ahead without any hitches with the creditors (principally the FSCS who had submitted a proxy voting in favour of the acceptance of the proposals) approving my proposals in every respect. However there was a problem with the members meeting which was convened for the same time. This was because in order for any meeting to be properly held, it must be quorate i.e. have sufficient a number of persons attending under the relevant rules. HCU s rules required that a minimum of 15 members needed to be present for there to be a quorum. As there were fewer than the minimum number of members present, I adjourned the meeting. Fortunately HCU s rules state that at the reconvened meeting, those members present, however many they may be, will constitute a quorum. In the event 8 members physically attended the adjourned meeting on 18 June and the FSCS attended by proxy. The meeting voted for the acceptance of my proposals including the 3 matters listed above, without modification or amendment, enabling me to take steps to close the administration and put the Credit Union into liquidation. Therefore the outcome of the creditors and members meetings was that: 1. The Credit Union should, as soon as possible, exit administration and go into creditors voluntary liquidation; 2. Approval was given for me to be appointed as liquidator; 3. My remuneration as administrator and then as liquidator be set by reference to my firm s time costs from time to time; 4. My expenses as administrator and then as liquidator be set by reference to my firm s statement of policy; 5

6 5. No creditors or members committees were created, either for the administration or the liquidation. On 23 June I lodged the appropriate form with the Mutuals Registrar (the equivalent of Companies House) to transfer the Credit Union into liquidation. On 17 July, the Mutuals Registrar formally accepted the document, thereby putting the Credit Union into liquidation as from that date. Therefore the Credit Union was in administration for 4 months. 4 Receipts and payments summary Attached at Appendix 2 is a summary of my receipts and payments as administrator from the date of my appointment on 13 March 2015 to the date the administration closed, on 17 July My comments on the principal items in the summary are as follows: 1) On my appointment HCU held a significant sum of cash at bank (about 225,000) representing members savings for whom the Credit Union could not effectively find credit worthy borrowers. The relevant bank accounts were transferred into my name as administrator soon after my appointment. 2) As referred to above in Section 2, I sold 80,000 of the Credit Union s performing loan book to a neighbouring Credit Union for 40,000. 3) The major payments out have been for professional fees. These are discussed in paragraph 6 below. 4) Having taken solicitors advice, I have returned 5,000 to the National Lottery, as this represented monies advanced to the Credit Union for a specific purpose which remained unfulfilled. Investigations into whether a similar sum of money received from the Pembroke Local Authority ought to be returned will be completed by me as liquidator in due course. (together the Quistclose claims named after the leading authority on the relevant law) 5) I am currently holding 199,000 of cash at bank, to meet the ongoing costs of the formal insolvency of the Credit Union and permit a dividend to be paid to the unsecured creditors. 6) I have taken steps to collect in the Credit Union s more problematic loan debtors this role will now be continued by me as liquidator. The outcome of the administration is that: 1. Members were repaid their savings by the FSCS quickly and with minimal fuss; 2. The balances in the Credit Union s bank accounts were realised into the administration; 3. The performing loan debts were sold for a sum I considered acceptable; 4. The money I am now holding at bank is to be paid out, after paying the further costs of the administration and liquidation, as a dividend to creditors, predominantly the FSCS. 5 Statement of Affairs I have attached at Appendix 2 a copy of the first 2 pages of the directors statement of affairs, which as regards the major figures compares quite closely with my receipts and payments, except as regards the loan debtor book, where I feel actual realisations are likely to fall short. I am obliged by the law to advise you that the prescribed part does not apply in this Administration as there is no charge holder. 6

7 6 Administrator s remuneration and expenses In the UK administrators remuneration is determined in accordance with Rule of IR86, as amended by the Enterprise Act Rule 2.106(5) enables the creditors, at their meeting, to set the basis of my fees where there is no creditors committee. As you were informed above, in Section 2, no creditors committee was created and at their meeting of 20 May my remuneration was set by the creditors on the basis of my time costs. I am required, after that determination, to provide you with information to enable you to form a judgement as to whether my fees and expenses are reasonable under the circumstances. As a consequence I have set out at Appendix 4, a summary of my time costs for the period of the administration, together with some supporting explanations; at Appendix 5 a copy of my firm s fees and expenses policy and charge out rates; a copy of some guidance provided by my governing body at Appendix 7 entitled A creditor s guide to Administrators fees which together should assist you in your assessment. Additional guidance and information on the setting of my fees and expenses can be found in my proposals please call or me to ask for a copy if you require one. Please note that it was for the creditors to set the basis of my fees and expenses as administrator and now to consider their reasonableness. It is not a matter for the members per se. If you are a member who has not been paid out by the FSCS AND you invested more than the 1 minimum shareholding in the Credit Union, you may be able under the law to carry out that assessment in your position as a creditor of HCU. You will note from Appendix 4 that my firm has spent 289 hours dealing with matters arising during the course of the administration, incurring total chargeable costs of 58,145 which provides an average charge out rate of 201 per hour. I have drawn fees of 25,000 as Administrator to date, and anticipate drawing the remainder shortly. I anticipate incurring approximately 2,500 finalising and sending out this report post 17 July. The nature of Credit Union formal insolvency is that it is often necessary to use quite, and thus more expensive, staff to do a good proportion of the work and as a consequence the average costs per hour are higher than would be incurred on a typical administration of say a manufacturing business. I have spent a lot of time in the following, unavoidable, areas, which often pose significant difficulties and/or cost in credit union insolvencies: Identifying and implementing ways through several pieces of often conflicting legislation the laws applying to credit unions do not sit happily with insolvency legislation despite the recent changes hence why I have also incurred significant lawyers fees; Writing and reporting on several occasions to over 1,400 members; Regularly liaising with the FSCS and regulators; Holding several members and creditors meetings; Dealing with late savings claims for example from members whose addresses did not agree with the Credit Union s records; The investigation of 2 Quistclose claims to the cash at bank (partly ongoing); Recording and dealing with hundreds of small receipts into the bank accounts direct from members. This included analysing them between savings to be returned, loan repayments from members whose debts had been sold on to Saveeasy, and loan repayments from the loan debts that were not sold. 7

8 I have incurred and paid the following disbursements during the period of my appointment as liquidator: Nature of expenses Provided by Incurred and paid during the administration Solicitors fees Higgs & Sons 20,350 Postage Post Office and FSB Documail 3,342 Post redirection Post Office 350 Provision of specialist insolvency Visionblue 185 system Books and records removal and L&R Services Limited 1,625 storage Insolvency bond Willis 1,312 Statutory and other advertising Predominantly the London Gazette 463 Statement of Affairs production The Credit Union s auditors, 1,500 Ashmole & Co (fixed fee) Hire of hall for 2meetings Pater Hall Community Trust 74 Higgs and Sons were instructed on a time costs basis to provide legal advice and support on a range of aspects of the administration, including liaising with the regulators, the sale of the performing loan book, the holding of meetings of members and creditors, the Quistclose claims, and generally finding a way through often conflicting pieces of legislation. Their times costs amounted to 20,350 representing 89 hours at an average of 229 per hour. I chose Higgs because they have prior experience in the formal insolvency procedures of Credit Unions, something I consider to be vital. Pre-appointment costs and expenses Rule 2.33(2B) of the IR86 sets out the information I have to provide you with in respect of preappointment costs. This information was previously provided in my proposals. The preappointment costs were agreed by the directors of the Credit Union on 2 March 2015, as a fixed fee in the sum of 25,000 including VAT as detailed in our letter of engagement of 3 March 2015 and paid on the same date. The work carried out pre-appointment, which was explained at pages 6 and 7 of the proposals, could only have been carried out prior to the administration if the FSCS were to pay out members savings within the 7 day statutory limit. The 25,000 paid covered the following: Time and expenses incurred by my firm, Midlands Business Recovery: Paid To meet the time costs of Midlands Business Recovery in liaising with members and 13, the regulators and assisting in placing the Credit Union into administration Costs directly incurred with FSB Documail on the initial circularisation of members on 6 March , ,

9 Others: Higgs & Sons, lawyers, for dealing with the legal aspects of putting the Credit Union into administration, including liaison with the regulators 6, , Vat 4, Total 25, Assessing the administrator s fees and expenses My governing body requires that I provide certain additional information to you. This is as follows: This administration posed some unusual challenges, being one of the first few administrations under the new insolvency rules which sought to apply normal insolvency law to credit unions. Nevertheless I consider that my firm s standard rates were appropriate, with no enhancement. Rates for work done in the administration are charged at that for the most appropriate grade of staff for a particular task. There have been no increases in charge out rates since the commencement of the administration. Under insolvency legislation certain parties dealing with a company, including unsecured creditors, can seek further information and explanations from the administrator of his remuneration and expenses, and if unhappy, go on to challenge them in court. The legislation is far too cumbersome to set out here and I recognise that because this is an area of the law that many people do not encounter often, it can be immensely confusing. We have set out in Appendix 6 a summary of our policy for dealing with any reasonable requests for more information creditors may make as regards our fees or expenses. Please note that the law provides for two, strict, deadlines for you to seek information and explanations (21 days) and for any application to court (8 weeks). 7 Investigation into the conduct of the directors I am required to investigate the conduct of the directors and send a report to the Insolvency Service. I have already submitted my report, which is a protected document between myself and the Insolvency Service. If however any creditor or member should have any matters which they would like to bring to my attention, they still have time to do so because as liquidator I am obliged to send in another report. All matters should be brought to my attention in writing please. 8 Other information I am required under the Insolvency Rules 1986 to state whether and if so the extent to which the EC regulations apply to this Administration. In this particular case the EC Regulations will apply and the proceedings will be main proceedings as provided by Article 3 of the regulations. Additional information required by insolvency legislation can be found at Appendix 1. 9

10 Conclusion This concludes my final progress report as administrator. If you have any queries regarding the administration please contact me on freephone or by to Yours faithfully Paul Brindley Former Administrator of haven Credit Union Limited - paul@midlandsbusinessrecovery.co.uk 10

11 Statutory and other information Appendix 1 Formal name Registered society number Haven Credit Union Limited IP00369C Authorised by the Prudential Regulation Authority ( PRA ) to accept deposits (savings) Authorised and regulated by the Financial Conduct Authority Court making the administration order; date of order; and court reference number Details of the administrator (No changes throughout) Administrator appointed by Extension to administration sought/obtained? Any amendments or deviations to the Administrator s proposals? Former registered office and head office Current Registered Office FCA reference number UK High Court of Justice, Chancery Division, Birmingham District Registry; 13 March 2015; Reference: 8092 of 2015 Paul Ronald Brindley, of Midlands Business Recovery, Alpha House, Tipton Street, Sedgley, West Midlands, DY3 1HE The directors of Haven Credit Union Limited No No 19 Charles Street, Milford Haven, Dyfed, SA73 2AA Alpha House, Tipton Street, Sedgley, West Midlands, DY3 1HE Directors within the last 3 years Mrs Brenda Stella Hancock- Appointed 2002 Mrs Beryl Angela John Appointed 2012; Resigned October 2014 Ms Patricia Ann Jones Appointed 2002; Resigned January 2014 Mr David Rees Appointed June 2012 Mr Anthony Edward Sangster Appointed March 2013 Miss Sarah Joanna Berry Appointed 2002 Mr William James Edward Roach-John Appointed 2009 Secretary The prescribed part Mrs Brenda Stella Hancock There is no charge over the assets of the Credit Union and therefore no prescribed 11

12 part under the provisions of Section 176A IA86. Payments made under 176A Nil. Secured creditors Preferential creditors The Credit Union s records show there is no amount due to any secured creditor The amount owed to preferential creditors in the administration was estimated at 1,800. This was paid as part of the costs of keeping the Credit Union open for a few weeks after the administrator s appointment. Unsecured creditors The unsecured creditor and unpaid members savings claims are estimated at 0.34 million. No steps have been taken to agree these claims at this time. Paid to creditors Nil. Assets that remain unrealised, to be passed to the liquidator to collect out Loans made to members with a book value of approximately 38,000 12

13 Haven Credit Union Limited (formerly in administration) APPENDIX 2 Summary of the Administrator's Receipts and Payments 13 March 2015 to 17 July 2015 Per directors' statement of affairs Note Receipts Cash at Bank 225, ,479 Sale of debtor book 40,000 85,844 Receipts from members for loans and savings 1 9,675 Grant income 3,177 3,177 Furniture and office equipment Nil 1,257 Rent deposit returned by former landlord 800 Bank interest 101 Petty Cash and Floats 149 Total receipts 279, ,757 Payments Administrator's fees on account 25,000 Solicitors' fees 20,350 Irrecoverable vat 2 10,239 Repayment of post administration savings and Saveeasy loans 7,755 Refund of grant monies (Quistclose claim) 5,000 Postage/circularisation of letters and reports 3,243 Wages paid to Credit Union staff 2,627 Removal and storage of books and records 1,625 Fee to the auditors for preparing the directors' statement of affairs 1,500 Insolvency bond 1,312 Statutory and other advertising 463 Post redirection 350 Insolvency system 185 Bank charges 96 Hire of Pater Hall for meetings 74 Utilities 19 Total payments 79,837 Balance at 17 July ,224 Note 1. The savings element of this is being returned to the members. Any part of this that is for debts sold to Saveeasy have been paid across to Saveeasy 2. As the Credit Union is not vat registered, vat cannot be reclaimed. 13

14 Statement of affairs Appendix 3 14

15 15

16 APPENDIX 4 Administrator s Remuneration Schedule Haven Credit Union Limited Between 08 March 2015 and 16 July 2015 Classification of work function Partner/ Director Manager Other Senior Professionals Assistants & Support Staff Total Hours Time Cost Average Hourly Rate Administration & , Planning Investigations , Realisation of , Assets Trading , Creditors , Case Specific Matters Total hours Time costs 31, , , , Average hourly rate Summary of Fees Time spent in administering the Assignment Hours Total value of time spent to 16 July , Total Administrator s fees charged to 16 July , Time spent on casework is recorded directly onto the relevant cases records using the computerised Insolv system, with the nature of the work recorded at that time. Time is recorded in 6 minute units. Time is recorded under appropriate headings as follows: This includes: Administration Investigations Realisation of assets Creditors/members On site work The administrative set up of the case in accordance with the law; Preparing a number of reports to creditors and members, including the proposals; keeping the financial and other records of the case up to date in accordance with the Insolvency Act and Rules; cashiering; planning and reviewing case progression; liaising with the regulators Undertaking an investigation of the affairs of the insolvent; reporting to the Department for Business and Innovation; investigating the Quistclose claims. Identifying, securing, and realising the assets, including the cash at bank and selling the performing loan book; collecting in the non-performing loan debts owed Dealing generally with creditors and members, including putting in late claims from savers; repaying savers who continued to pay direct into the Credit Union s bank post administration; paying loan repayments erroneously paid to me direct to bank by members post sale to Saveeasy; communicating with creditors and members generally A variety of work done while on the Credit Union s premises, covering all the above areas 16

17 Midlands Business Recovery APPENDIX 5 Statement of policy on fees and disbursements 1 Introduction This statement has been prepared to help interested parties understand the basis of our fees and costs. This information applies to all formal insolvency appointments, where we act as liquidator, receiver, administrative receiver or supervisor of a limited company. References to SIP9 in this policy refer to Statement of Insolvency Practice number 9 issued by the ICAEW on insolvency practitioners fees. 2 Policy on fees The law on formal insolvency appointments fees was changed in April 2010 to encourage creditors to be more active in fixing practitioners fees and querying them later. As a firm we have decided not to carry out formal insolvency appointments on a fixed price basis. Instead, in common with most insolvency practices we base our fees on the amount of time we spend on each assignment, priced at the rates in place when the work was done, drawing down such fees at our discretion. Hourly rates are reviewed annually on 1 January and apply for the whole calendar year. The annual review of rates is at the sole discretion of the firm, and such changes will be notified in retrospect with each report to creditors and members. Our 2015 hourly rates are: Grade Rate Grade Rate Licensed Insolvency 298 Case manager 180 Practitioner Other senior professional 118 Assistant and support staff 90 Time is recorded in 6 minute units and is input with supporting narrative onto our time recording system, Insolv, to explain the work undertaken. These rates represent an increase of about 3% from those charged in the year to 31 December Currently, we have no one filling the other senior professional post. 3 Policy on disbursements SIP 9 splits disbursements into category 1 (those directly incurred on assignments for which the practitioner has a third party invoice) and category 2 expenses (typically expenses incurred by the practice as a whole and allocated across assignments or charges where the practitioner sets the price such a travelling costs). We adopt a very simple policy concerning disbursements - we do not charge for category 2 disbursements; we charge only for category 1 disbursements, and at the exact cost to us. Typical category 1 expenses are: Advertising required by the law Insolvency bonding Insolv case management system ( 185 per case) Agents, solicitors and pension advisors fees 4 Provision of information For more information on how an insolvency practitioner s fees and disbursements can be fixed, or later queried, further guidance can be found on the website of the Institute of Chartered Accountants and on our website. If you should have any difficulty locating the information, or should like a hard copy of the guidance or rules, or should like any further explanations, please call us on or Paul Brindley at paul@midlandsbusinessrecovery.co.uk. 5 Authorising Body Paul Brindley is licensed to act as an Insolvency Practitioner in the UK by the Institute of Chartered Accountants in England & Wales and holds an enabling bond for the purpose of receiving appointments under his licence. Midlands Business Recovery 1 January

18 APPENDIX 6 Questioning an administrator s fees and expenses where the administration started off after 6 April 2010 our guidance It s a two step process firstly of seeking information, and secondly, if you are not happy with the situation, of going to court to challenge the administrator s fees and expenses. Finally, at the end of this section, we explain what our policy for dealing with queries is. 1. Seeking information Where an administration started off after 6 April 2010, certain people can request additional information from the administrator on his remuneration and expenses over and above that which he provides in his reports. The purpose of the law at this stage is to enable the interested party to assess the reasonableness of the administrator s costs. Who can do this? 1. An unsecured creditor may, whose own claim exceeds, or together with others whose claims exceed, 5% in value of the total unsecured creditors, may request further details of the administrator s remuneration and expenses. No court approval is needed, it s merely a question of contacting the administrator, in writing, and asking for reasonable information. 2. A secured creditor can seek similar information. In this case, there s no de-minimis and court approval is not needed, the secured creditor just has to ask for reasonable information. 3. A creditor, director or member of the company (with no de-minimis debt or shareholding) may request certain, but lesser detailed, specific information How do they do this, by when and what can they query? In 1. and 2. the request for information must be lodged with the administrator within 21 days of the creditor s receipt of the administrator s progress report. This is a strict deadline, if it is missed, the creditors lose their right to request information. The information sought can be on remuneration or expenses whether already drawn or proposed. 2. Challenging the remuneration or expenses after obtaining such information Again, where the administration starts off after 6 April 2010, once the information referred to above has been obtained, certain creditors have the ability to apply to court to challenge the administrator s remuneration and expenses (again, as above, whether already drawn or proposed). That is to say, if one or more creditors are not happy with the basis of calculation of the administrator s remuneration, it can be challenged. Who can do this? 1. An unsecured creditor may, whose own claim exceeds, or together with others whose claims exceed, 10% in value of the total unsecured creditors. 2. A secured creditor. There is no de-minimis level in this instance. In both cases, the application to court must be made within 8 weeks of the creditor s receipt of the relevant report. 18

19 3. What s our Policy? Midlands Business Recovery is committed to ensuring an honest and open dialogue with creditors. We are confident that our charges are reasonable but we do recognise that professional fees and expenses often cause creditors concern. We promise to listen to and deal properly with creditors reasonable requests for information where we believe they are made for perfectly proper reasons. We will provide information quickly (typically within 7 days, barring holiday periods) and of a standard that will enable creditors to make a proper assessment. We promise to be honest and open with creditors. In return we expect creditors to show us the same level of respect and courtesy. We prefer to talk to creditors early, by telephone or face to face, if they have any concerns as we find that this can avoid difficulties caused by inadequate communication or a misunderstanding of each other s position. If you have any concerns about the fees or expenses of Midlands Business Recovery, please do not hesitate to call Paul Brindley on , either to discuss your concerns there and then or to arrange a meeting. Or if you prefer, you can Paul at paul@midlandsbusinessrecovery.co.uk. 19

20 A CREDITORS GUIDE TO ADMINISTRATORS FEES APPENDIX 7 ENGLAND AND WALES 1 Introduction 1.1 When a company goes into administration the costs of the proceedings are paid out of its assets. The creditors, who hope eventually to recover some of their debts out of the assets, therefore have a direct interest in the level of costs, and in particular the remuneration of the insolvency practitioner appointed to act as administrator. The insolvency legislation recognises this interest by providing mechanisms for creditors to determine the basis of the administrator s fees. This guide is intended to help creditors be aware of their rights under the legislation to approve and monitor fees, explains the basis on which fees are fixed and how creditors can seek information about expenses incurred by the administrator and challenge those they consider to be excessive. 2 The nature of administration 2.1 Administration is a procedure which places a company under the control of an insolvency practitioner and the protection of the court with the following objective: rescuing the company as a going concern, or achieving a better result for the creditors as a whole than would be likely if the company were wound up without first being in administration, or, if the administrator thinks neither of these objectives is reasonably practicable realising property in order to make a distribution to secured or preferential creditors. 3 The creditors committee 3.1 The creditors have the right to appoint a committee with a minimum of 3 and a maximum of 5 members. One of the functions of the committee is to determine the basis of the administrator s remuneration. The committee is normally established at the meeting of creditors which the administrator is required to hold within a maximum of 10 weeks from the beginning of the administration to consider his proposals. The administrator must call the first meeting of the committee within 6 weeks of its establishment, and subsequent meetings must be held either at specified dates agreed by the committee, or when a member of the committee asks for one, or when the administrator decides he needs to hold one. The committee has power to summon the administrator to attend before it and provide information about the exercise of his functions. 4 Fixing the administrator s remuneration 4.1 The basis for fixing the administrator s remuneration is set out in Rule of the Insolvency Rules 1986, which states that it shall be fixed: as a percentage of the value of the property which the administrator has to deal with, by reference to the time properly given by the administrator and his staff in attending to matters arising in the administration, or as a set amount. Any combination of these bases may be used to fix the remuneration, and different bases may be used for different things done by the administrator. Where the remuneration is fixed as a percentage, different percentages may be used for different things done by the administrator. It is for the creditors committee (if there is one) to determine on which of these bases, or combination of bases, the remuneration is to be fixed. Where it is fixed as a percentage, it is for the committee to determine the percentage or percentages to be applied, and where it is a set 20

21 amount, to determine that amount. Rule says that in arriving at its decision the committee shall have regard to the following matters: the complexity (or otherwise) of the case; any responsibility of an exceptional kind or degree which falls on the administrator; the effectiveness with which the administrator appears to be carrying out, or to have carried out, his duties; the value and nature of the property which the administrator has to deal with. 4.2 If there is no creditors committee, or the committee does not make the requisite determination (and provided the circumstances described in paragraph 4.3 do not apply), the administrator s remuneration may be fixed by a resolution of a meeting of creditors having regard to the same matters as apply in the case of the committee. If the remuneration is not fixed in any of these ways, it will be fixed by the court on application by the administrator, but the administrator may not make such an application unless he has first tried to get his remuneration fixed by the committee or creditors as described above, and in any case not later than 18 months after his appointment. 4.3 There are special rules about creditors resolutions in cases where the administrator has stated in his proposals that the company has insufficient property to enable a distribution to be made to unsecured creditors except out of the reserved fund which may have to be set aside out of floating charge assets. In this case, if there is no creditors committee, or the committee does not make the requisite determination, the remuneration may be fixed by the approval of each secured creditor of the company; or if the administrator has made or intends to make a distribution to preferential creditors - each secured creditor of the company; and - preferential creditors whose debts amount to more than 50% of the preferential debts of the company, disregarding debts of any creditor who does not respond to an invitation to give or withhold approval, having regard to the same matters as the committee would. Note that there is no requirement to hold a creditors meeting in such cases unless a meeting is requisitioned by creditors whose debts amount to at least 10 per cent of the total debts of the company. 4.4 A resolution of creditors may be obtained by correspondence. 5. Review of remuneration 5.1 Where there has been a material and substantial change in circumstances since the basis of the administrator s remuneration was fixed, the administrator may request that it be changed. The request must be made to the same body as initially approved the remuneration, and the same rules apply as to the original approval. 6. Approval of pre-administration costs 6.1 Sometimes the administrator may need to seek approval for the payment of costs in connection with preparatory work incurred before the company went into administration but which remain unpaid. Such costs may relate to work done either by the administrator or by another insolvency practitioner. Details of such costs must be included in the administrator s proposals. 6.2 Where there is a creditors committee, it is for the committee to determine whether, and to what extent, such costs should be approved for payment. If there is no committee or the committee does not make the necessary determination, or if it does but the administrator, or other insolvency practitioner who has incurred pre-administration costs, considers the amount agreed to be insufficient, approval may be given by a meeting of 21

22 creditors. Where the circumstances described in paragraph 4.3 apply, the determination may be made by the same creditors as approve the administrator s remuneration. 6.3 The administrator must convene a meting of the committee or the creditors for the purposes of approving the payment of pre-administration costs if requested to do so by another insolvency practitioner who has incurred such costs. If there is no determination under these provisions, or if there is but the administrator or other insolvency practitioner considers the amount agreed to be insufficient, the administrator may apply to the court for a determination. 7 What information should be provided by the administrator? 7.1 When seeking remuneration approval When seeking agreement to his fees the administrator should provide sufficient supporting information to enable the committee or the creditors to form a judgement as to whether the proposed fee is reasonable having regard to all the circumstances of the case. The nature and extent of the supporting information which should be provided will depend on: the nature of the approval being sought; the stage during the administration of the case at which it is being sought; and the size and complexity of the case Where, at any creditors or committee meeting, the administrator seeks agreement to the terms on which he is to be remunerated, he should provide the meeting with details of the charge-out rates of all grades of staff, including principals, which are likely to be involved on the case Where the administrator seeks agreement to his fees during the course of the administration, he should always provide an up to date receipts and payments account. Where the proposed fee is based on time costs the administrator should disclose to the committee or the creditors the time spent and the charge-out value in the particular case, together with, where appropriate, such additional information as may reasonably be required having regard to the size and complexity of the case. The additional information should comprise a sufficient explanation of what the administrator has achieved and how it was achieved to enable the value of the exercise to be assessed (whilst recognising that the administrator must fulfil certain statutory obligations that might be seen to bring no added value for creditors) and to establish that the time has been properly spent on the case. That assessment will need to be made having regard to the time spent and the rates at which that time was charged, bearing in mind the factors set out in paragraph 4.1 above. To enable this assessment to be carried out it may be necessary for the administrator to provide an analysis of the time spent on the case by type of activity and grade of staff. The degree of detail will depend on the circumstances of the case, but it will be helpful to be aware of the professional guidance which has been given to insolvency practitioners on this subject. The guidance suggests the following areas of activity as a basis for the analysis of time spent: Administration and planning Investigations Realisation of assets Trading Creditors Any other case-specific matters The following categories are suggested as a basis for analysis by grade of staff: Partner Manager Other senior professionals 22

23 Assistants and support staff The explanation of what has been done can be expected to include an outline of the nature of the assignment and the administrator s own initial assessment, including the anticipated return to creditors. To the extent applicable it should also explain: Any significant aspects of the case, particularly those that affect the amount of time spent. The reasons for subsequent changes in strategy. Any comments on any figures in the summary of time spent accompanying the request the administrator wishes to make. The steps taken to establish the views of creditors, particularly in relation to agreeing the strategy for the assignment, budgeting, time recording, fee drawing or fee agreement. Any existing agreement about fees. Details of how other professionals, including subcontractors, were chosen, how they were contracted to be paid, and what steps have been taken to review their fees. It should be borne in mind that the degree of analysis and form of presentation should be proportionate to the size and complexity of the case. In smaller cases not all categories of activity will always be relevant, whilst further analysis may be necessary in larger cases Where the fee is charged on a percentage basis the administrator should provide details of any work which has been or is intended to be sub-contracted out which would normally be undertaken directly by an administrator or his staff. 7.2 After remuneration approval Where a resolution fixing the basis of fees is passed at any creditors meeting held before he has substantially completed his functions, the administrator should notify the creditors of the details of the resolution in his next report or circular to them. In all subsequent reports to creditors the administrator should specify the amount of remuneration he has drawn in accordance with the resolution (see further paragraph 8.1 below). Where the fee is based on time costs he should also provide details of the time spent and charge-out value to date and any material changes in the rates charged for the various grades since the resolution was first passed. He should also provide such additional information as may be required in accordance with the principles set out in paragraph Where the fee is charged on a percentage basis the administrator should provide the details set out in paragraph above regarding work which has been sub-contracted out. 7.3 Disbursements and other expenses There is no statutory requirement for the committee or the creditors to approve the drawing of expenses or disbursements, but there is provision for the creditors to challenge them, as described below. Professional guidance issued to insolvency practitioners requires that, where the administrator proposes to recover costs which, whilst being in the nature of expenses or disbursements, may include an element of shared or allocated costs (such as room hire, document storage or communication facilities provided by the administrator s own firm), they must be disclosed and be authorised by those responsible for approving his remuneration. Such expenses must be directly incurred on the case and subject to a reasonable method of calculation and allocation. 8 Progress reports and requests for further information 8.1 The administrator is required to send a progress report to creditors at 6-monthly intervals. The report must include: details of the basis fixed for the remuneration of the administrator (or if not fixed at the date of the report, the steps taken during the period of the report to fix it); if the basis has been fixed, the remuneration charged during the period of the report, irrespective of whether it was actually paid during that period (except where it is fixed as a set amount, in which case it may be shown as that amount without any apportionment for the period 23