Jeremy Charles Frost & Anor v The Good Box Co Labs Limited & Ors

The Court of Appeal dismissed the administrators' appeal seeking a court order under Rules 18.24 and 18.28 of the Insolvency Rules 2016 to increase their remuneration. The court held that Rules 18.24 and 18.28 apply to increases where remuneration was fixed as a set amount or by reference to a percentage of assets, but do not extend to increases where the basis fixed was time-costs. In the latter case the scheme in Rules 18.16 and 18.30 governs entitlement to draw further remuneration up to the previously delivered fees estimate. The court also explained the practical consequences of the sanctioned Restructuring Plan (Part 26A, Companies Act 2006) and paragraph 99 of Schedule B1 (Insolvency Act 1986), concluding that the Plan's adjudication process is the appropriate route for resolving unpaid remuneration disputes and that, for reasons of fairness (the court's inherent jurisdiction), the administrators should seek approval from the Plan Administrators before drawing further sums despite the entitlement created by the fees estimate.

This is an appeal from HHJ Klein's decision of 5 March 2024 dismissing an application by the former joint administrators of The Good Box Co Labs Limited for an order increasing their remuneration. The administrators were appointed on 28 June 2022 and ceased on 26 January 2023 upon the effective date of a sanctioned Restructuring Plan under Part 26A Companies Act 2006.

Nature of the application:

• The administrators applied to the court pursuant to Rules 18.24 and 18.28 Insolvency Rules 2016 seeking an order increasing the amount of their remuneration (they contended their basis of remuneration had been fixed on a time-cost basis but sought additional sums for work done).

Procedural posture:

• The administrators had earlier sought creditor approval by decision procedure; a fees estimate of £400,315.50 was delivered before the basis was fixed. Creditors' decision procedure dated 30 December 2022 approved payment on account of £235,000 plus VAT and, according to the administrators, fixed the basis as time-costs. The Plan provided an adjudication process for claims against the company and contemplated unpaid administrators' fees being subject to adjudication or court application.
• A preliminary "Standing Issue" as to whether former administrators could apply under the Rules was directed for determination but the primary dispute at the hearing became whether Rules 18.24/18.28 were the correct procedural route (the "Ambit Issue").

Issues framed by the court:

• Whether Rules 18.24 and 18.28 permit an administrator to apply to the court to increase remuneration where the remuneration basis had been fixed on a time-cost basis.
• Whether the administrators had standing to make such an application after leaving office.
• The practical consequences of the Restructuring Plan and the administrators' obligations in light of their prior promise to creditors.

Court's reasoning and conclusions:

• The court concluded Rules 18.24 and 18.28 must be read in the context of Rule 18.16. The expressions "rate or amount" and "basis" in Rule 18.24 refer back to the specific bases set out in Rule 18.16: percentage of assets, time-costs, or a set amount. Increasing the "amount" or "rate" in Rules 18.24/18.28 therefore addresses cases where remuneration had been fixed as a set amount or by reference to a percentage, while a change in "basis" can encompass time-costs. There is a distinct procedure for time-costs cases in Rules 18.16 and 18.30.
• Because the administrators' basis had been fixed on a time-cost basis (as the judge found), their application under Rules 18.24/18.28 fell outside those Rules' ambit and was therefore properly dismissed.
• Rule 18.30 provides that an administrator may not draw remuneration beyond the fees estimate without approval; conversely, where a fees estimate was given before fixing the time-cost basis, the office-holders are entitled to draw remuneration up to that estimate without further approval. The administrators had provided a fees estimate of £400,315.50 before the basis was fixed.
• However, having told creditors in the December 2022 report that they would seek further approval before drawing beyond the payment on account, the administrators should seek the Plan Administrators' approval under the Plan's adjudication process. The court's inherent jurisdiction and the rule in Ex parte James (as explained in Lehman Bros Australia Ltd v MacNamara) would make it unfair for the administrators to take further sums without such approval.
• If disagreement with the Plan Administrators cannot be resolved, the dispute falls to be determined by Part 7 proceedings in the ordinary way.

The court therefore dismissed the appeal and provided guidance on the correct procedural route for recovery of unpaid remuneration in the particular circumstances created by a Restructuring Plan.

Appeal dismissed. The Court of Appeal held that Rules 18.24 and 18.28 of the Insolvency Rules 2016 do not permit an administrator to apply to the court to increase remuneration where the basis was fixed on a time-cost basis; instead the entitlement and any cap are governed by Rules 18.16 and 18.30. Because a fees estimate (£400,315.50) had been delivered before the basis was fixed, the administrators were in principle entitled to draw remuneration up to that estimate without further creditor or court approval, but fairness (and the administrators' prior undertaking to creditors) requires them to seek approval from the Plan Administrators under the Plan's adjudication process, and any unresolved dispute should be litigated by Part 7 claim.

Appeal from HHJ Klein (sitting as a deputy judge of the High Court, Business and Property Courts in Leeds) decision dated 5 March 2024 (CR-2022-LDS-000414). Restructuring Plan sanctioned by HHJ Davies-White KC on 16 January 2023. Permission to appeal was given (see order of Lewison LJ noted in the judgment).