5.7 Liquidation committees & OH remuneration

Question 1

What is the function of a creditors’ committee?

Answer 1

 Primary purpose:
 To assist the office holder in discharging their functions; and

 act in relation to the office holder in such manner as may from time to time be agreed

Committees also carry out the functions conferred on it by the Act:
 Fix the basis of the office holder’s remuneration; and
 Inspect financial and other records relating to the administration of the case; and
 If the committee is not satisfied, it may inform the Secretary of State

Question 2

What is the difference for committees in CVLs?

Answer 2

The creditors may appoint a committee (“the liquidation committee”) of not more than 5 persons (minimum of 3 under the Rules)
(as all c
ommittees)
IN addition
 If such a committee is appointed, the company may appoint such number of persons as they think fit to act as members of the committee, not exceeding 5

 However, the creditors may decide that all or any of the persons so appointed by the company ought not to be members; and if they do so:
 those persons are not then qualified to act as members

Subject to the court determining otherwise

Question 3

How is a creditors committee formed - CVL?

Answer 3

OH must deliver to the creditors a notice inviting them to decide whether a liquidation committee should be established if sufficient creditors are willing to be members of the committee

 The notice must also invite nominations for membership of the committee, such nominations to be received by a date specified in the notice.

 The notice must state that nominations—

 must be delivered to the convener by the specified date; and
 can only be accepted if the convener is satisfied as to the creditors’ eligibility

Question 4

How is a creditors committee formed - Comp WU

Answer 4

Where a decision is sought from the company’s creditors and contributories on the appointment of a liquidator, the convener of the decision must at the same time deliver to the creditors and contributories a notice inviting them to decide whether a liquidation committee should be established if sufficient creditors are willing to be members of the committee.

 The notice must also invite nominations for membership of the committee, such nominations to be received by a date specified in the notice.

 The liquidator must seek a decision from the company’s creditors and contributories as to whether a liquidation committee should be established if requested, in accordance with the rules, to do so by ONE-TENTH in value of the company’s creditors

When the Official Receiver is acting as liquidator:
 No committee can be formed
 An existing committee can
not act

 If no committee, the functions of a committee are vested in the Secretary of State

 Unless the Rules provide otherwise

Question 5

What is the general rule of priority for payment of expenses in liquidation?

Answer 5

Expenses of provisional liquidator
Expenses of protecting, preserving, getting in assets and inc. costs of legal proceedings
Costs of a shorthand writer employer by the official receiver
Costs of the official receiver
Costs of security of [provisional liquidator], liquidator or special manager
Remuneration of provisional liquidator
Costs of the petitioner
Remuneration of a special manager
Costs in connection with preparation of Statement of Affairs
Costs of a shorthand writer employer by the liquidator
Necessary disbursements of the liquidator (including the expenses of the liquidation committee and corporation tax liabilities, except chargeable gains)
Remuneration of any person employed by the liquidator to perform services for the company
Remuneration of the liquidator up to the amount payable on the Schedule 11 Scale
Corporation tax on any chargeable gains
Any balance of the remuneration payable to the liquidator
Any other expenses properly chargeable by the liquidator in carrying out their functions

Question 6

What are the OR fees?

Answer 6

 Public Interest ground £7,500
 All other grounds £5000
 OR’s general fee £6,000
 [Deposit on petition]: £2,600

OR’s fees where acting as liquidator 15% of receipts

Question 7

What must the OH disclose when they propose to take all or part of their remuneration on a time spent basis? (or any other basis)

Answer 7

they must provide:
Work proposed
 a fee estimate; and
 details of the expenses the office-holder considers will be, or are likely to be, incurred

 R18.16(5): Where an administrator expects to become the liquidator, the fee estimate may include the estimated liquidation costs

 R18.16(6): Other than in MVL, information must be given to creditors before basis is fixed

IN CVL the information can be disclosed pre appointment

Question 8

What happens where joint OH’s dispute the apportionment of fees between them?

Answer 8

Dispute may be referred to:

 to the committee, to the creditors (by a decision procedure)
or (in a members’ voluntary winding up) the company in general meeting, for settlement by resolution;
or
 to the court, for settlement by order

Question 9

How are fees determined in an MVL?

Answer 9

It is for the company in general meeting to determine the basis of remuneration

Question 10

How are fees initially determined in an insolvent liquidation?

Answer 10

 It is for the committee to determine the basis of remuneration

 If the committee fails to determine the basis of remuneration or there is no committee then the basis of remuneration may be fixed by a decision of the creditors by a decision procedure

 where an administrator becomes liquidator (either CVL or compulsory) the basis of remuneration fixed for the administrator is treated as having been fixed for the liquidator

Question 11

What happens if creditors don’t agree remuneration in a compulsory liq?

Answer 11

Where in a winding up by the court the liquidator has requested the creditors to fix the basis of remuneration and the creditors have not done so; or

 in any event if the basis of remuneration is not fixed by the creditors within 18 months after the date of the liquidator’s appointment

The liquidator entitled to fees calculated on the Schedule11 Scale

Question 12

What happens if creditors don’t agree remuneration in a voluntary liq?

Answer 12

If the basis of the liquidator’s remuneration is not fixed under the rules they must apply to the court for it to be fixed

 They must first attempt to have it fixed by the appropriate body

 In MVL–14 days notice to contributories

Question 13

What happens when the liquidator considers the rate or amount of remuneration fixed to be insufficient, or the. basis fixed to be inappropriate?

Answer 13

They may:
 Seek an increase in a creditors’ decision procedure
 Apply to court for an order increasing their renumeration

Where it was fixed by the committee, they may seek a decision of the creditors

Question 14

When can the OH request a review of basis of remuneration that has been fixed?

Answer 14

Where there is a material and substantial change in the circumstances which were taken into account in fixing it, the office-holder may request that the basis be changed

Question 15

What fees is the OH entitled to wrt realisation of assets on behalf of a secured creditor?

Answer 15

 Fixed charge realisations: Schedule11 scale on realisations only
 Floating charge: Schedule11 scale on realisation and distributions

Unless agreed otherwise with secured creditor

Question 16

What are scale 11 fees?

Answer 16

20 % of first £5k
15% next £5k
10% on next £90k
5% on any further realistations

Distributions = half above percentages

Question 17

When must SA fees be authorised - CVL?

Answer 17

Must be authorised by liquidation committee or creditors, if paid after

Question 18

What are SIP 9 principles?

Answer 18

All payments from an estate should be fair and reasonable and proportionate to the insolvency appointment.

Payments to the associates of an office holder from an estate should be fair and reasonable reflections of the work necessarily and properly undertaken in an insolvency appointment.

All payments should be directly attributable to the estate from which they are being made or sought.

Payments that could reasonably be perceived as presenting a threat to the office holder’s objectivity or independence by virtue of a professional or personal relationship, including to an associate, should not be made from the estate unless disclosed and approved in the same manner as an office holder’s remuneration or category 2 expenses.

Question 19

What happens when the OH disposes of any property to a person connected with the company?

Answer 19

he shall, if there is for the time being a liquidation committee, give notice to the committee of that exercise of his powers

Question 20

What happens when the OH (other than OR) disposes of any property to a person connected with the company or employs a solicitor?

Answer 20

he shall, if there is for the time being a liquidation committee, give notice to the committee of that exercise of his powers

Question 21

When can creditors request more information about fees?

Answer 21

The delivery of the annual or final report (i.e. the provision of this information) triggers the creditors’ rights to:
 Request furtheri nformation
 Challenge the fees charge in the period reported upon

Question 22

What information must be included in the progress report?

Answer 22

The information about remuneration and expenses is required irrespective of
whether payment was made in respect of them during the period of the report.

the basis fixed for the remuneration (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 of remuneration has been fixed, a statement of:
 the remuneration charged during the period of the report, and
 where the report is the first to be made after the basis has been fixed, the remuneration charged by the office-holder during the periods covered by the previous reports, together with a description of the things done during those periods in respect of which the remuneration was charged

where the basis is fixed as a set amount, it may be shown as that amount without any apportionment to the period of the report

Question 23

How long do secured and unsecured creditors have to request further information about remuneration & expenses?

Answer 23

21 days

Question 24

How long does OH have to provide any further information requested about remuneration and expenses?

Answer 24

14 days unless grounds for not doing so:

It would be excessively time -consuming or costly to provide the information sought
 It would prejudice the conduct of the winding up to provide the information sought
 It would expose a person to risk of violence
 The office holder is subject to an obligation of confidentiality

Question 25

When can a secured or unsecured creditor apply to court that remuneration is excessive?

Answer 25

The application must be made not later than 8 weeks from the delivery of the progress or final report which first reports the charging complained of

 A secured creditor
 Or an unsecured creditor
 With the concurrence of at least 10% in value of unsecured creditors
 Or with the permission of the court

May make an application to court on the ground that
 The remuneration charged by the officeholder is in all the circumstances excessive; or
 The basis is in appropriate;or
 The expenses incurred are in all the circumstances excessive