Brook v Reed

A court fixing or reviewing an insolvency office-holder’s remuneration should apply the guiding principles in the 2004 Practice Statement. Remuneration must reward the value of the services rendered. Recorded time measures cost rather than value and is relevant but not decisive.

Proportionality depends on all the circumstances of the insolvency, including the assets, liabilities, statutory duties, necessary investigations, commercial risks, efficiency and conduct that increased the work. A time-cost resolution authorises payment only for time properly given under those criteria.

An office-holder’s fiduciary position places the burden on the office-holder to justify the remuneration claimed. Sufficient and proportionate information must be supplied to the court and any objector, and doubts are resolved against the office-holder.

A trustee in bankruptcy’s remuneration was challenged by the bankrupt during proceedings intended to secure annulment of a small bankruptcy. The estate comprised a modest retail business and a half-share in the matrimonial home. It had few creditors and was expected to produce a surplus. The bankrupt’s failure to provide information and secure the debts nevertheless prolonged the administration.

The district judge allowed the trustee’s remuneration and costs without conducting a substantive assessment. On appeal, His Honour Judge Behrens set that decision aside and reduced the trustee’s remuneration to £9,929.75, while allowing disbursements of £2,890.75. Neither lower court had been referred to the 2004 Practice Statement governing insolvency office-holders’ remuneration.

The Court of Appeal considered whether the reduced figure remained disproportionate to the circumstances of the bankruptcy and whether the judge had wrongly treated recorded time as the proper measure of remuneration.

1. Appeal dismissed. The principles in the 2004 Practice Statement should have been applied expressly. Its guiding principles correctly state the principles generally applicable when a court fixes or reviews an insolvency office-holder’s remuneration. The court must balance value, proportionality, fairness and reasonableness in the circumstances of the particular insolvency: per David Richards J, with whom Arden and Black LJJ agreed.

2. The Practice Statement applies to challenges against remuneration already authorised under the Insolvency Rules 1986, as well as applications by office-holders to fix or increase remuneration. The procedure and evidence required may differ. On a challenge, the office-holder must provide enough proportionate information to explain the remuneration and permit reasonably precise points of dispute.

3. The value of the service is the touchstone. Time spent measures the cost of providing the service and remains relevant, but it is not decisive. A creditors’ resolution fixing remuneration by reference to time properly given does not insulate the claim from scrutiny. Time is properly spent only when it satisfies the Practice Statement’s criteria in the context of the whole case.

4. Proportionality is assessed against all the circumstances of the insolvency. The number and value of assets and claims are important but not exhaustive. The court must also consider statutory duties, necessary investigations, unsuccessful but commercially justified work, dealings with creditors, the debtor’s conduct, the responsibility and risk assumed, and the efficiency with which work was performed.

5. The trustee’s fiduciary status underpins the assessment. An office-holder may claim only remuneration authorised by law, must act frankly, and must avoid unreasonable expenditure or inappropriate allocation of work. The office-holder bears the burden of justifying the claim, and unresolved doubts are determined against the office-holder.

6. Although Judge Behrens had used legal-costs proportionality by analogy and had not been referred to the Practice Statement, he had examined the work substantially by reference to value and the circumstances of the bankruptcy. The bankrupt’s repeated failures concerning annulment had inevitably increased the work. Express application of the correct principles would not have produced a materially different result.

1. Court of Appeal (Civil Division): The appeal was dismissed. The reduced remuneration fixed by the High Court was left undisturbed: [2011] EWCA Civ 331.

2. High Court, Chancery Division, Leeds District Registry: His Honour Judge Behrens allowed the bankrupt’s first appeal, set aside the district judge’s assessment and reduced the trustee’s remuneration to £9,929.75. No neutral citation is stated.

3. County Court: District Judge Barraclough allowed the trustee’s claimed remuneration and costs because the bankrupt had not supplied detailed points of dispute. The High Court held that this was an abrogation of the court’s duty to assess the claim.