All insolvency officeholders will be concerned about the increased uncertainty created by the recent case Re Calibre Solicitors (In Administration) concerning challenges to their remuneration and expenses.
The Judgement allowed a challenge brought outside the time limit provided by the Insolvency Rules on the basis that there were good reasons for the delay. Office holders facing a challenge made out of time will now need to consider whether there are any sufficient grounds to justify this. They may be criticised if they do not seek to enforce the time bar, but if they do reject the challenge on that basis and time is extended, that could also be a basis for criticism.
In Re Calibre the administrators had delivered 2 reports dealing with their remuneration and expenses. Both were challenged but the 2nd application was made out of time. Mr Registrar Jones’ Judgment confirmed that separate applications must be issued in respect of remuneration and expenses reported by administrators in each successive progress report.
It followed that the 2nd application was made out of time. The Court has authority to extend any period specified by the Insolvency Rules by virtue of the unrestricted power to do so contained in Rule 12A.55(2). But Rule 2.109(1B) uses the mandatory word “must” and Rule 2.48(A)3 provides an express exception where an administrator has refused to provide further information.
Taken together, these points could be viewed as suggesting that time should be extended only in the rarest of cases. Indeed, the Registrar made reference to the fact that administration is intended to be a relatively short process as a consideration weighing against granting an extension to the 8 week period, because of the degree of uncertainty it can cause (but it must be noted that that would not necessarily apply to the equivalent time bar applicable in liquidations and bankruptcies, where there is perhaps less need to ensure that issues relating to estates are handled quickly).
The Registrar sought to balance the interests of everyone involved and was also influenced by the much less stringent approach to compliance with Court time limits generally led by the Court of Appeal in Denton. He was ultimately persuaded to extend time because the administrators were aware of the issues, the delay was relatively short and reliance upon the time bar appeared to be somewhat technical, although that is a point that could be made in relation to most time bars.
The problem with this judgment is highlighted by the third aspect of the judgment: having allowed the challenge to proceed, the Registrar severely criticised the costs estimates put forward by both parties. He considered that the estimates were excessive and in giving directions, made costs budgeting suggestions which, if followed by the parties will have had the effect of reducing the allowable costs substantially. The importance of a cost budget is that it will limit the costs recoverable from the applicant if the insolvency practitioner successfully resists the challenge to his remuneration and expenses.
Given the substantial irrecoverable costs of successfully resisting a substantive challenge, insolvency practitioners may well face criticism if they have not taken a time bar point when it is properly available. Identifying when it will be available will not be a straightforward exercise. Administrators should therefore have a clear record on their files of the decision making process and we suggest professional advice ought to be obtained.