Chapter 3 - The Insolvency Practitioner: key professional issues

Question 1

Criteria to act as an IP?

Answer 1

Cannot act if disqualified (i.e bankrupt or subject to debt relief order)

Not be disqualified as a director

Must be an individual (not a company)

Must be authorised by a RPB

Must have in place security/insurance/bond

Question 2

Bonding - what is the purpose? and what is the General Penalty Sum and the Specific Penalty Sum?

Answer 2

Level of bond set out in IP regulations 2005 - given to compensate creditors for any breaches of duty by an IP that may result in financial loss.

General Penalty Sum = £250,000

Specific Penalty Sum = is calculated by reference to estimated assets in case. Maximum £5,000,000 and Min £5,000

Question 3

When must a progress report be completed in a compulsory liquidation and when must it be completed by?

Answer 3

Liquidator must produce a progress report for the first year of their appointment and every year thereafter until cease to act. R18.8

Must be sent to CH, creditors and members within 2 months of the end of the period that the report relates.

No progress report is required for any period after the liquidator has sent a draft final report to creditors.

Question 4

When must a progress report be completed in a CVL or MVL and when must it be completed by?

Answer 4

Liquidator must produce a progress report for each year on commencement of the date if their appointment and every year thereafter until cease to act. R18.7

If ceases to act the period for which the new liquidator must produce reports is unaffected.

Must be sent to CH, creditors and members within 2 months of the end of the period that the report relates.

No progress report is required for any period after the liquidator has sent a draft final report to creditors.

Question 5

When must a progress report be completed in an administration and when must it be completed by?

Answer 5

Administrator must produce a progress report for the period of 6 months commencing on the date the company went into liquidation. R18.3

Period unaffected by change in administrator.

Report must be sent to creditors and CH within 1 month of the end of the period to which the report relates.

Question 6

When must the final report in an administration be filed by?

Answer 6

R3.55 deals with final progress reports. Final report must be filed at CH within 5 business days of the end of the administration.

Copies must be sent to all persons who received a copy of the administrators proposals as soon as reasonably practical.

Question 7

When must a progress report be completed in a bankruptcy and when must it be completed by?

Answer 7

Trustee must produce a progress report for the first year from the date of his appointment and every year thereafter until he ceases to act. R18.8

Progress report must be sent to all creditors within 2 months of the end of the period to which the report relates.

Question 8

When must a progress report be completed in a CVA, when must it be completed by and who does it need to be sent it?

Answer 8

Supervisors of a CVA must circulate a report covering 12 months from the commencement of the CVA, set out progress and the prospects of success.

Report must be sent within 2 months of end of the period to which it relates to:
- CH
- The Company
- The bound creditors
- The members of the company (unless court gives permission not to circulate)
- The company auditors unless the company is in liquidation

If within the 2 month period the supervisor becomes obliged to circulate final report, the annual report does not need to be sent.

Question 9

What 3 things might a supervisor in an IVA be required to do?
When must a progress report be completed in an IVA and when must it be completed by?

Answer 9

R8.28 supervisor must keep accounts and records and where the IVA authorises supervisor to:
- carry on debtors business (unusual, they usually do it themselves)
- realise assets of debtor
- otherwise, administer or dispose of any of the debtors (or estates) funds

Once in every 12 month period (from date of approval) deliver reports on progress and prospects to the debtor and all creditors bound by agreement.

Must be delivered within 2 months of the end of the 12 month period. If obligation to deliver final report arrives during that 2 month period, then don’t need to deliver the earlier 12 month report.

Question 10

What are the reporting deadlines in a administrative receivership for progress reports?

Answer 10

Within 3 months of appointment must sent out initial report (S48) to creditors and CH.

Thereafter must send out R&P to each member of creditors committee, CH, the company and appointer 2 months after the end of 12 months from date of appointment and then yearly.

Final account must be sent within 2 months of ceasing to act.

Question 11

What are the reporting deadlines in a fixed charge receivership?

Answer 11

The receiver must, within 1 month after the end of 12 months from date of appointment, and every subsequent 6 months deliver account of R&P to CH (S38)

Question 12

Rule for use of website and how soon must a hard copy of report be sent if requested?

Answer 12

Rule 1.50 - future documents can be posted on website without further notice.

When requested, the hard copy must be sent within 5 business days at no charge.

Question 13

How long must an IP keep records?

Answer 13

Records must be kept for at least 6 years after the IP obtains his release from office or if later the date on which his bond ceases to have effect.

Question 14

How long do creditors have to reject decision procedure and request physical meeting?

Answer 14

5 business dates from date of delivery of the notice

Question 15

What value is needed for a deemed consent procedure to fail?

Answer 15

10% in value of creditors object

Question 16

How many/what % of creditors need to request a physical meeting to take place?

Answer 16

10% value
10% in number of creditors
10 creditors

Question 17

Name three basis’s for calculation of remuneration

Answer 17

As a % of assets distributed or realised

By reference to the time given

As a fixed fee

Question 18

Name four things that should be considered when deciding remuneration

Answer 18

Complexity of the case

Any responsibility of an exceptional kind which falls on office holder

The effectiveness with which the office holder appears to be carrying out duties

The value and nature of the property that the office holder has to deal with.

Question 19

Who authorises remuneration in a compulsory liquidation? What happens if it is not fixed with in what time period?

Answer 19

The liquidation committee is there is one or a decision of creditors

If remuneration is not fixed within 18 months of appointment the Schedule 11 scale rate charge applies.

Question 20

In a compulsory or CVL, if a liquidator is not happy with fee, what can they do?

Answer 20

Apply to court to fix remuneration. Application must be made on 14 days notice to the committee or creditors.

Question 21

If the company was in administration immediately prior to going into liquidation does the basis of remuneration still apply?

Answer 21

Yes

However any request for authorisation of time costs for the liquidation period must be done separately.

Question 22

If a liquidator realises assets for a secured creditor holding a fixed charge, can the liquidator take their remuneration from the proceeds of sale?

Answer 22

Yes

Question 23

Who authorises remuneration in a CVL?
What happens if it is not fixed within what time period?

Answer 23

The liquidation committee if there is one, or meeting of creditors.

If it is not fixed within 18 months from date of appointment, the court will fix the remuneration.

Question 24

Who authorises remuneration in an MVL?
What happens if it doesn’t get fixed?

Answer 24

Fees agreed in general meeting.

In default, the court can fix the liquidators remuneration provided that they have made an application to the GM and applies within 18 months of appointment. and give 14
days notice to the contributories of the company

Question 25

Who authorises remuneration in an administration?

Answer 25

If there is a creditors committee, them.

If no committee or they fail to reach an agreement or administrator is unsatisfied, can apply to:
- secured creditors (if no distribution to preferential creditors)
- the secured creditors and more than 50% of pref creditors (if distribution to pref creditors)
- the unsecured creditors in a GM

Question 26

Who agrees remuneration in a bankruptcy?

Answer 26

Creditors committee, or a meeting of creditors.

If not fixed within 18 months of appointment, the schedule 11 scale rates apply.

Trustee an apply to court if unsatisfied. Notice of 14s to committee or creditors

Question 27

What is the Schedule 11 scale?

Answer 27

Band, Realisation scale, Distribution scale
First £5k 20%, 10%
Next £5k 15%, 7.5%
Next £90k 10%, 5%
all further sums 5%, 2.5%

Question 28

If an administrator is unhappy with remuneration, what can they do?

Answer 28

Can apply to court to fix remuneration within 18 months of appointment.

Where fee set by creditors committee, administrator can apply to creditors under R18.24/25.
If no dividend to unsecured or pref creditors is anticipated then an application can be made to secured creditors.
If div to pref creditors is anticipated then application is to secured and pref creditors who debtors amount to more than 50% of the pref debt, ignoring those creditors who do not responde to any invitation to give/withhold approval.

Question 29

Is variation in remuneration possible once it has been fixed?

Answer 29

Yes - if there has been a ‘material and substantial’ change in circumstances the office holder may request basis of remuneration to be changed,

The request is made to the body that first fixed the remuneration and it will not apply retrospectively.

Question 30

Who may request further information about remuneration?
(for a liquidator, administrator and a trustee)

Answer 30

Secured creditor

Unsecured creditor with the support of at least 5% in value of the creditors (or members in an MVL)

Any unsecured creditor or member with the permission of the court.

Question 31

What at the deadlines/timeline if a creditor requests further information on remuneration?

Answer 31

Request for further info must be made with in 21 days of receiving the progress report (unless the report is in anticipation of a resignation, in which case it is 7 days)

Office holder has 14 days to either respond, or justify why they will not do so.

Any creditor/member may then apply to court within 21 days of either the expiry of the 14 days or receipt of any justification by office holder as to why they will not provide the info.

Question 32

What are the justifications for an office holder not to provide more info on remuneration when it has been requested?

Answer 32

Considers the time or cost of preparing a response to the request excessive

Disclosure may prejudice the liquidation/administration/bankruptcy or lead to violence against any person

Office holder is subject to an obligation of confidentiality in respect of the information.

Question 33

If creditors are dissatisfied with level of remuneration , what % must concur and what timelines are there?

Answer 33

Creditors claiming remuneration is excessive in CVL, compulsory, bankruptcy and admins may apply to court:

• at lease 10% of creditors in value (including applicate) must concur
• application must be made within 8 weeks of receipt of the account or report in which the remuneration and expenses are set out. (or 4 weeks if it is the draft final report)

Question 34

If creditor applies to court for excessive remuneration, name 5 orders the court can make

Answer 34

• order reducing the amount of remuneration that office holder was entitled to charge
• order fixing basis of remuneration at a reduced rate or amount
• order changing the basis of remuneration
• order that some or all of the remuneration or expenses in question be treated not as expenses
• order that the office holder pay to such a person as the court may specify the amount of the excess or remuneration or expense.

Costs of the application fall on the applicant and not the estate.

Question 35

If remuneration is requested on a time cost basis, what information must the office holder provide?

Answer 35

• details of minimum time units used
• current charge out rates
• split by grades of staff and if over £10k split by activity

of those who have been or are likely to be involved in time costs aspects of the case.

Question 36

Within how many days of a resigning liquidator serving notice of resignation with Registrar or Companies, must a meeting/decision procedure to replace liquidator be held?

Answer 36

5 business days

Question 37

Within how many days of a resigning liquidator serving notice of his resignation with the registrar of Companies, will his release be effective?

Answer 37

21 days

Question 38

Creditors and directors can request time statements, within what timeframe must the information be provided?

Answer 38

Within 28 days of receipt of the request

Question 39

True or false - the expense of a pre-pack admin can be recovered as pre-appointment costs?

Answer 39

False