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Insolvency Law

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Guildhall Chambers , 03 MAR 2015

Hosking and Bonney (liquidators of Hellas Telecommunications) v Slaughter and May [2014] EWHC 1390 (Ch)

Hosking and Bonney (liquidators of Hellas Telecommunications) v Slaughter and May [2014] EWHC 1390 (Ch)
(Chancery Division, HHJ David Cooke, 13 June 2014)

Ability of subsequent insolvency practitioners to review legal fees previously agreed under IR 7.34.

The liquidators of a company appealed against the refusal of the Registrar to order that the fees of the solicitors employed by the administrators previously in office (and agreed and paid by the administrators) should be assessed by the court.

The company entered administration on 26 November 2009. The Administrators had employed Slaughter and May (‘the Firm’) to advise them in relation to a number of claims which might have been open to the Company. The administrators agreed and paid Slaughter and May legal fees of about £2.5m. By the end of 2011 the administrators concluded that there were no claims that could be realistically pursued and therefore applied for the administration to be brought to an end. The administration was brought to a close in early December and the company wound up and liquidators appointed. The former administrators subsequently agreed a further bill presented by the firm in respect of their work on the court hearing.

The liquidators later sought to challenge the fees paid to Slaughter and May under r 7.34 of the Insolvency Rules 1986 (through assessment) or the Solicitors Act 1974 (although this latter claim was dropped).

The Registrar held that assessment under Insolvency Rule 7.34 could not be ordered because the administrators had agreed to the relevant fees, and further declined to order assessment under the inherent jurisdiction because it would be wrong to do so, relying on the reasoning of Ferris J in Engel v Peri [2002] BPIR 961 that Parliament had left the decision to employ solicitors and agree their fees to the responsible insolvency practitioner and the court should not usurp that function.

The liquidators appealed. The issues to be determined on the appeal were:

1. The correctness of the Registrar’s interpretation of the rules;
2. Whether it was open to the Registrar to direct assessment of the December bill under r 7.34(4), and whether the Registrar had been right not to order assessment on the basis that the administrators had agreed the fee despite that agreement being made after the end of the administration; and
3. Whether the Registrar had wrongly decided that where r 7.34(1) applied, the court had no remaining inherent jurisdiction to direct assessment after fees had been agreed.

HHJ David Cooke held that:

1. The Registrar’s interpretation of the Rules was correct. The 1986 Act represented a “sea change” from the position prior, which had had mandatory taxation of costs in bankruptcy and compulsory liquidation. Now, the power to decide whether costs should be agreed or assessed was given to the responsible insolvency practitioner; a change which would have little effect if it was not binding.
The decision to seek to assess the costs had been that of the liquidators, not the administrators, but the liquidators had not been the responsible in solvency practitioners in relation to the decision to agree the firm’s costs payable as expenses of the administration. Rule 13.9 defined the responsible insolvency practitioner “in relation to any insolvency proceedings” so there could be no doubt that, in relation to the administration, the administrators in office for the time being were the responsible insolvency practitioners. Decisions of the administrators in the course of the administration could not be retaken or undone by liquidators subsequently appointed (see paras 22-24 of the judgment)
The Registrar had also correctly held that r 7.34(4) related only to the costs of litigation, not to the general costs incurred in the insolvency procedure. The rule recognise that the court retained power in litigation before it to make an order for assessment of costs relating to that litigation, and that was distinct from the question of the costs payable from the estate in the general conduct of insolvency (para 28).
2. The Registrar was wrong to hold that r 7.34(4) applied to any bill that referred to legal proceedings. As the power in r 7.34(4) was to make an order “in...proceedings before the Court”, it could only be construed as applying to costs orders made in those proceedings by the court seised of the proceedings. There could therefore be no ground for limiting the power of that court to cases where the costs were not agreed.
The rule was not intended to exclude the possibility that the court in proceedings before it might conclude that assessment of costs was required and so order without leaving the matter to the insolvency practitioner’s discretion. The judge in the proceedings (brining the administration to an end) had made an order as to costs, which directed that the costs be treated as expenses of the administration. He had not required them to be assessed. Accordingly, they were costs payable out of the estate and fell within r 7.34(1), so the responsible insolvency practitioner could either agree them or require their assessment (paras 31-34).
The “responsible insolvency practitioner” in r 7.34(1) was “the person acting...as administrator” which could not be construed as extending to former administrators. Accordingly the registrar had been wrong to consider that the December bill was governed by r 7.34(4) and/or had been validly agreed by the administrators. The company had gone into liquidation and thus the quantification of the amount charge on the assets in the hands of the liquidator was a matter that requires to be dealt with in the liquidation, in relation to which the liquidator is the responsible practitioner, so that he may agree them under r 7.34(1) and if he does not do so, the default requirement for assessment takes effect (para 40).
3. The Registrar had not held either that the court had no remaining inherent jurisdiction to direct an assessment, nor that any such residual jurisdiction had been excluded by the fees being agreed. Rather, he had accepted that in principle the jurisdiction existed, but considered that it should not be exercised in the circumstances. His exercise of that discretion could not be said to be wrong (paras 49-50 and 58-59). The court also held that in certain circumstances, the inherent jurisdiction to review would be invoked: circumstances such as approval being procured by fraud.
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