Frost & Anor v The Good Box Co Labs Ltd & Ors

Factual and Procedural Background

This appeal arises from the decision of HHJ Klein, a deputy judge of the High Court, dated 5 March 2024, which dismissed an application by the joint administrators of Company A for an order increasing their remuneration. The administrators were appointed on 28 June 2022 and ceased office on 26 January 2023 following the effective date of a restructuring plan under Part 26A of the Companies Act 2006.

The administrators initially sought creditor approval for their fees via a virtual meeting on 5 September 2022, where creditors approved substantive proposals but appointed a creditors' committee to consider fees. A creditors' committee meeting on 1 November 2022 failed to reach a decision on the fees due to lack of clarity. Subsequently, a decision procedure of the creditors was held with a decision date of 30 December 2022, approving fees on a time-cost basis up to £235,000 plus VAT.

The restructuring plan ("the Plan") was sanctioned on 16 January 2023. Under the Plan, the administrators were required to hand over Company A's affairs to the Plan Administrator, and any unpaid fees approved by the creditors' committee as at the effective date were to be paid within 14 days. Other fees were subject to an adjudication process, with recourse to the Court if no agreement was reached.

The administrators submitted a claim for outstanding remuneration and expenses under the Plan on 6 February 2023. While expenses were accepted, the remuneration claim (approx. £230,000) was largely refused except for £21,667, representing an undrawn balance of previously approved fees. The Plan Administrators directed the administrators to pursue an application under Insolvency Rules 18.24 and 18.28 to increase their claim, prompting the administrators to apply to the Court.

The judge below considered two preliminary issues: whether the administrators had standing to apply after ceasing office ("Standing Issue") and whether their application fell within the scope of Rules 18.24 and 18.28 ("Ambit Issue"). The judge concluded the application did not fall within the ambit of these Rules and, on the Standing Issue, held that had the application been within the Rules, the administrators would have had standing.

Legal Issues Presented

1. Whether former administrators have standing to apply under Insolvency Rules 18.24 and 18.28 to increase their remuneration after ceasing office.
2. Whether an application to increase remuneration falls within the ambit of Rules 18.24 and 18.28 where remuneration was fixed on a time-cost basis, as opposed to a set amount.

Arguments of the Parties

Appellant's Arguments

• The administrators contended that Rules 18.24 and 18.28 are framed in broad terms and that the reference to increasing the "rate or amount" of remuneration is not limited to cases where remuneration was fixed as a set amount.
• They argued that the increase sought was clearly an increase in the "amount" of remuneration for work done, even though the remuneration was fixed on a time-cost basis.
• They acknowledged the need for further approval but maintained the Rules should permit their application to increase remuneration beyond the previously approved sum on account.

Respondents' Arguments

• The Company and NGI argued that the administrators’ remuneration had been fixed in a set amount (£235,000) and that the administrators' application was outside the scope of Rules 18.24 and 18.28.
• They contended that the administrators lacked standing to make the application after ceasing office.
• They submitted that the administrators were bound by their promise not to draw remuneration beyond the amount approved on account without further approval.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analyzed the relevant provisions of the Insolvency Rules 2016, particularly Rules 18.16, 18.24, 18.28, and 18.30, which govern the fixing and increasing of remuneration for insolvency office-holders.

Rule 18.16 provides three bases for fixing remuneration: (a) percentage of assets, (b) time properly given (time-cost basis), or (c) a set amount. The court emphasized that the phrases "rate or amount of remuneration fixed" in Rules 18.24 and 18.28 refer specifically to these bases as defined in Rule 18.16.

The administrators’ remuneration in this case had been fixed on a time-cost basis by creditors’ resolution, with a fees estimate provided before fixation. The court held that Rules 18.24 and 18.28 only permit applications to increase remuneration where the remuneration was fixed as a set amount or percentage, not where fixed on a time-cost basis.

The court explained that where remuneration is fixed on a time-cost basis, the administrators’ entitlement to draw remuneration is capped by the fees estimate under Rule 18.30, and any increase beyond that requires approval under that rule, not under Rules 18.24 or 18.28.

The court rejected the appellant’s argument that Rules 18.24 and 18.28 should be interpreted broadly to include increases in remuneration fixed on a time-cost basis, noting that the existence of Rule 18.30 provides a distinct mechanism for such increases.

The court further considered the rule in Ex parte James, which prevents officers of the court from acting unfairly, and held that the administrators could not take remuneration beyond the approved amount without further approval, consistent with their prior promise to creditors.

The court acknowledged procedural complications arising from the Plan’s adjudication process but clarified that any disputes over remuneration beyond the fees estimate should be resolved by seeking approval from the Plan Administrators or, failing agreement, by Part 7 court proceedings rather than under the Insolvency Rules 18.24 and 18.28.

Regarding the Standing Issue, the court found it unnecessary to decide definitively since the application did not fall within the ambit of the Rules. However, the judge below had held that the administrators would have standing if the application had been within the Rules.

Holding and Implications

The court dismissed the appeal.

The direct effect is that the administrators’ application to increase their remuneration under Insolvency Rules 18.24 and 18.28 is not permitted where remuneration was fixed on a time-cost basis. The administrators are entitled to remuneration up to the amount of the fees estimate (£400,315.50) without further approval, but cannot draw beyond the amount approved on account (£235,000) without seeking further approval.

Due to the administrators’ promise to creditors to seek approval before drawing further remuneration, the appropriate procedure is to seek approval from the Plan Administrators under the Plan’s adjudication process. Any unresolved disputes would then be resolved by Part 7 court proceedings, not under the Insolvency Rules 18.24 and 18.28.

No new precedent was established beyond the clarification of the proper application and scope of the relevant Insolvency Rules and the interaction with the restructuring Plan.