Remuneration in administrations

Who decides, when preferential creditors decide?

In an administration, r18.18 IR’16 sets the procedure for setting the administrator’s remuneration.

Firstly, if there is a committee, they decide (r18.18(2)).

The task passes to the creditors, for a decision procedure, if there’s no committee, or if the committee does not make a decision (r18.18(3)).

When the task passes to the creditors, that normally means all creditors.  But that changes in cases where the administrator has already said (in a paragraph 52(1)(b) statement) that they don’t expect a dividend for ordinary unsecured creditors (except from the prescribed part).  In those cases, the task passes again to either:

  • Secured creditors (and each must approve the remuneration resolution) – unless the administrator expects a dividend for preferential creditors; or
  • Secured creditors (and each must approve the remuneration resolution) and preferential creditors (voting in a decision procedure) – when the administrator does expect a dividend for preferential creditors.
  • Although there are two classes of preferential creditor (ordinary, and secondary), r18.18 treats preferential creditors as a single class.  It does not distinguish between them, in setting out the need to win their approval.  I have seen nothing to suggest this will change.

Nor is there anything in r15 (which deals with decision procedures) that requires different classes of unsecured creditor to be treated differently.  (Remember, of course, that the two classes of preferential creditors are two classes of unsecured creditor, both with priority over ordinary unsecured creditors, for dividend purposes.)

So, in administrations where HMRC is a preferential creditor, and no dividend is expected for ordinary unsecured creditors (and fearing that HMRC may, at least at first, not be fully prepared to make timely and effective decisions), I suggest:

  1. Try to get a committee formed.  If the committee approve your fee resolution, you won’t need to rely on HMRC to do so.
  2. Encourage employees with preferential claims to engage.  Their votes may carry the fee resolution, even if they vote on only one or two relatively small claims.