Hellas Telecommunications (Luxembourg) II SCA, Joint Liquidators of v Slaughter and May (a firm)

The Court of Appeal held that under the Insolvency Rules 1986 as framed at the relevant time an administrator could agree and pay solicitors' fees incurred in the administration and such agreement did not permit subsequently appointed liquidators to require a detailed assessment of those costs under IR 7.34 or by invoking the court's inherent jurisdiction. The court interpreted IR 7.34(1) and related provisions as not extending the detailed-assessment procedure to cover costs of a past administration at the instance of a liquidator. The court explained that statutory remedies exist to challenge an administrator's decisions (for example, misfeasance proceedings, enforcement of the statutory charge in Schedule B1 paragraph 99 and applications under section 168(3) IA 1986) and these, rather than a retrospective detailed assessment under IR 7.34, are the appropriate routes to challenge payments made by an administrator.

The court also decided Issue 2 (whether the position is different if the agreement took place after the administration terminated): No — administrators could agree and pay fees both before and after the administration terminated, subject to the statutory charge and available remedies.

Background and parties. The administrators of Hellas Telecommunications engaged Slaughter and May as solicitors and, during the administration, agreed and paid fees from a designated account. The administrators wound up the company and were discharged; liquidators succeeded. The liquidators sought a ruling that they could require the companies court to order a detailed assessment of fees agreed between the administrators and Slaughter and May under IR 7.34 or the court's inherent jurisdiction.

Procedural history. Registrar Jones held administrators could agree and pay solicitors' fees and that IR 7.34 did not permit a later assessment. The liquidators appealed to the High Court where HHJ David Cooke dismissed the appeal on Issue 1 but held (on Issue 2) that former administrators could not validly agree fees after they had ceased to hold office. Both sides appealed to the Court of Appeal.

Issues framed.

• Issue 1: Whether liquidators can seek a detailed assessment under IR 7.34 (or under inherent jurisdiction) of solicitors' fees agreed between administrators and solicitors.
• Issue 2: Whether the answer differs if the agreement was made after the administration terminated.

Court’s reasoning and decision. The court concentrated on statutory construction of IR 7.34 and related provisions. It concluded IR 7.34(1) did not, as drafted at the relevant time, include administrations and that it was not appropriate to read words into that rule to include administrations. The court held administrators plainly had power to commission and agree fees during the administration and, where appropriate, to seek assessment themselves (for example under section 70 of the Solicitors Act 1974 or when required by a creditors' committee under IR 7.34(2)). Where an administration had ended the administrator retained protection by a statutory charge (Schedule B1 paragraph 99 IA 1986) and could enforce rights under that charge; liquidators have other remedies (misfeasance, creditor applications, s 168(3) IA 1986) if they contend payments were improper. The court therefore denied that liquidators could routinely require a retrospective detailed assessment under IR 7.34 or the court's inherent jurisdiction. It held administrators could agree fees even after the administration ended (subject to statutory charge and other remedies), and dismissed the liquidators' appeal; the court allowed the respondent firm's appeal in respect of the specific December invoice issue raised below.

Wider context. The court emphasised that its conclusions turn on the statutory scheme as it stood at the relevant time and that Parliament had provided other mechanisms to challenge administrators' conduct rather than retrospective detailed assessment by liquidators.

The Court of Appeal dismissed the liquidators' appeal on the principal issue and held (for the reasons of statutory construction of the Insolvency Rules 1986 and the Insolvency Act 1986) that administrators could agree and pay solicitors' fees during and after an administration and that liquidators could not require a detailed assessment of those previously-agreed fees under IR 7.34 or by invoking inherent jurisdiction; where appropriate liquidators have other remedies (for example misfeasance, enforcement of the statutory charge and applications under section 168(3) IA 1986). The court allowed Slaughter and May's appeal in relation to the December invoice.

Registrar Jones: decision dated 12 November 2013 (decision at first instance before the registrar). High Court (Chancery Division) His Honour Judge David Cooke: [2014] EWHC 1390 (Ch) — appeal to the High Court dismissed on Issue 1 but allowed on Issue 2 in part. Court of Appeal: [2016] EWCA Civ 474 (this judgment).