Stephen Robert Leslie Cork & Anor v John Penfold & Anor

Applications under rule 18.24 of the Insolvency Rules 2016 to increase remuneration fixed as a percentage of realisations require the office-holder to prove insufficiency and justify the terms sought. The court must assess the agreed risk allocation objectively, having regard to what was foreseeable or foreseen when the basis was fixed and to the parties’ communicated information. Private expectations or hopes do not determine the scope of the agreement. Remuneration must reflect the value of services, not merely time spent. Applications should ordinarily be prospective, particularly where a percentage basis is sought to be replaced retrospectively by a time-cost calculation. Delay, inadequate evidence of value, and work falling within foreseeable risks may justify dismissal.

The applicants were joint liquidators or former administrators of two related property companies. Their remuneration had been fixed at 5% of realisations. After the properties had been sold and the insolvencies were substantially complete, they applied under rule 18.24 of the Insolvency Rules 2016 for increased rates or alternative remuneration reflecting retrospectively calculated time costs.

They relied on allegedly unanticipated work, the hostility between the shareholders, property-sale issues, and lower-than-expected realisations. The respondent opposed the applications, contending that the risks were foreseeable and allocated by the agreed percentage basis. The central issues were whether the applications were in substance changes of basis, how insufficiency and inappropriateness should be assessed, and whether the evidence justified the sums claimed.

1. Applications dismissed. Both applications were in substance retrospective applications to change the remuneration basis from a percentage of realisations to remuneration calculated by reference to time spent. The proposed increased percentages had been reverse-engineered to produce sums similar to retrospectively calculated time costs.
2. Under rule 18.24 of the Insolvency Rules 2016, the office-holder bears the burden of proving insufficiency or inappropriateness and justifying the increase or change sought. Doubt is resolved against the office-holder. The court must apply the guiding principles in Part Six of the Practice Direction – Insolvency Proceedings, including justification, proportionality, value of service and timing.
3. Where remuneration is fixed by reference to realisations, the parties accept a degree of risk. The court must assess the scope of that risk objectively by reference to the circumstances and information available when the agreement was made. Uncommunicated hopes, assumptions or expectations of the office-holder are insufficient.
4. Remuneration must reflect the value of services rendered, rather than a mechanical calculation of hours multiplied by charge-out rates. Timesheets are not invariably mandatory, but the evidence must permit the court to assess the work done, its necessity, proportionality and value.
5. Applications should, so far as practicable, be prospective. Considerable weight was given to the fact that these applications were made after the work was substantially completed and after substantial unexplained delay. Retrospective relief would deprive the paying parties of the certainty and risk allocation for which the percentage basis had been agreed.
6. The allegedly unanticipated work was foreseeable or contingently implicit in the companies’ circumstances, including the shareholders’ hostility, claims, property issues, planning matters, squatters and tax questions. The evidence did not establish that the work provided value corresponding to the additional sums claimed. In the case of OMHL, the lower-than-expected sale price was an ordinary market fluctuation, not a material and substantial change of circumstances.