INSOLVENCY practitioners know full well that they have to tread carefully around creditors.
A recent court decision gave them more protection, but the ruling confirmed that insolvency practitioners (IPs) have to be on their best behaviour to gain the protection afforded to them by the decision.
In the case of Super Aguri, joint administrators Philip Long, Brian Hamblin and Ian Gould from PKF had their fees disputed but were awarded £241,843 following a High Court ruling – equivalent to about 95% of their fees.
They were appointed Super Aguri joint administrators on 6 May 2008 by its directors. At a meeting that year major creditor Honda, who was owed about 86% of the total debts, threw out PKF and appointed BDO as liquidators.
The liquidators, on instruction from Honda, objected to PKF’s fees after a disagreement between Honda and Super Aguri over the insolvent Formula One car maker’s future (see box). The case for PKF’s fees was then taken to court.
Duty of the administrator
Philip Long said he and the team took responsibility for all creditors when they were appointed. However, Honda’s lawyer wanted them to effectively act only in Honda’s interest. The judge in this case agreed the fees were high, but decided the administration was complex, the administrators had managed it “properly”, and the majority of fees were justified.
“The administrators did the right thing and stood by all the creditors. You can’t ignore them, you have to take their views into account,” said Chris Laughton partner at Mercer & Hole and president of European insolvency trade body Insol.
Administrators, when appointed, need to be careful they act in the interests of all creditors even if one of them represents more than 80% of the debt, which was the case with Honda. Super Aguri’s other creditors’ combined debt was an estimated £20m.
Although smaller creditors would have received “fractions in the penny”, Laughton believes the judgment is a reminder that the duty of the administrator is to act on behalf of the interest of all creditors and not just the major creditor.
IPs need to be careful when they are appointed that they are not driven by just one creditor, otherwise they risk being hauled in front of their regulatory body.
Parallels have been drawn between the Super Aguri case and the IPs’ conduct in the Sixty UK administration. In the latter the administrators, Nick O’Reilly and Peter Hollis, then of Vantis, proposed a company voluntary agreement (CVA). In the agreement guarantees to landlords, made by parent company Sixty SpA, were not honoured.
The CVA was approved but the landlords challenged the case in court. The judge criticised the administrators for a CVA which he claimed should never have seen “the light of day” as the proposals didn’t take into consideration all of the creditors’ interests. The judge sent his findings to regulatory bodies ACCA and IPA. Both cases show the influence of a single, powerful creditor. They also highlight that IPs must be able to demonstrate objectivity in insolvencies.
Previously the only other case regarding IP fees in recent times was Cabletel. In this administration, the IPs on appointment to the
Sky TV set-top box maker removed the company’s solicitors and replaced them with a larger firm.
The judge reduced the IPs’ claim to £87,000 from around £280,000 because he felt there was no need to replace the solicitors. He also disallowed the cost of the support staff as he claimed they were an “overhead” expense. He also withdrew time spent speaking with one of the major creditors, the bank, because it was of more benefit to the bank than the administration.
Comparing Cabletel with Super Aguri, Laughton said the IPs’ efforts at Cabletel were not as strong. “Now we have a case where the IP did a good job and the industry can feel more comfortable that they have got an appropriate judgment from the court. The Super Aguri judgment helps IPs stand up and do what they feel is right.”
However, some believe BDO liquidators should take responsibility for the dispute over administrator fees because they potentially could have reached an agreement with PKF before going to court. But it is not clear how much influence Honda had over the firm. Now that the dust has settled in the Super Aguri case the judge has provided IPs with more confidence to stand up in court and make fee applications.
Total debts in Super Aguri amount to £65m. The appeal costs are expected to come out of the expense of the liquidation, however, and BDO has yet to release any information on that figure.
The story so far…
Directors at Formula One business Super Aguri placed the business in administration on 6 May 2008 and PKF partners Philip Long, Brian Hamblin and Ian Gould were appointed joint administrators.
It is alleged major creditor Honda wanted to place the business into a company voluntary liquidation (CVL) instead of administration as they believed administration would be more costly. However, the directors decided the business would be better suited in an administration.
The joint administrators negotiated a future sale of the business and proposed at a creditor meeting on 27 June 2008 that it place the business in a CVL in 14 days and continue as liquidators – with their administrators fees paid.
Honda, which was owed more than £45m which represented about 86% of total debts, voted against these proposals. It appointed BDO liquidators and disputed fees accrued by administrators.
As liquidators BDO was instructed to offer PKF administrators £75,000 plus VAT which was rejected. PKF then applied to court for its fees on 19 January 2009 and a trial date set for 3 February 2009. A final hearing took place in July and a judgment was made more than a year later in October 2010.
Mr Registrar Jacques awarded fees to the administrators of £241,843.46, approximately 95% of their cost package.
The sale of Super Aguri was completed by BDO liquidators although it was negotiated and set up by PKF administrators.
Steve Absolom and Will Wright from KPMG Restructuring have been appointed joint administrators to City Motor Holdings and associated companies
Partners from Johnston Carmichael have been appointed as joint administrators to Axon Well Interventions Products UK
Begbies Traynor have been appointed administrators of William Anelay Ltd, York, one of Britain’s longest-established construction and heritage restoration companies
Smith & Williamson has been appointed administrators of charity 4Children