Creditors Guide to Liquidation Fees

When a company is liquidated, the procedure’s costs are usually paid from funds generated by the sale of the company’s assets. Creditors, who hope to recover some debt out of the assets, will have a direct interest in the level of costs. Particularly, the payment of the insolvency practitioner (IP) appointed to act as Liquidator.

The insolvency legislation recognises this interest by providing mechanisms for creditors to fix the basis of the liquidator’s fees. This guide is intended to help creditors be aware of their rights to approve and monitor fees and explains the basis on which fees are fixed.

Fixing the liquidator’s fees

The basis for fixing the liquidation fees is set out in Rules 4.127 – 4.127B of the Insolvency Rules 1986. The rules state that the remuneration shall be fixed either:

• As a percentage of the value of the assets which are realised or distributed or both.
• By reference to the time properly given by the liquidator and his staff in attending to matters arising in the liquidation.
• As a set amount (for IP appointments after 1^st October 2015, the liquidator must give a proposed estimate of the likely costs and fees. Liquidator’s fees will be capped unless the creditors agree otherwise.)

It is for the liquidation committee (if there is one) to determine on which of these bases the remuneration is to be fixed, and if it is to be fixed as a percentage, to fix the percentage to be applied. Rule 4.127 says that in arriving at its decision the committee shall have regard to the following matters:

• The complexity (or otherwise) of the case.
• Any respect in which, in connection with the winding up, there falls on the IP (as liquidator) any responsibility of an exceptional kind of degree.
• The effectiveness with which the IP appears to be carrying out, or to have carried out, his duties as liquidator.
• The value and nature of the assets with which the liquidator has to deal with.

If there is no liquidation committee, the liquidator’s fee may be fixed by a resolution discussed at a creditors meeting. The creditors take account of the same matters as the committee would. A resolution specifying the terms on which the liquidator is to be paid may be taken at the meeting which appoints the liquidator. If the remuneration is not fixed in any of these ways, it will be in accordance with a scale set in compulsory liquidation and court in voluntary liquidation.

The liquidation committee

In a liquidation (whether voluntary or compulsory) the creditors have the right to appoint a committee called the liquidation committee. This committee has a minimum of 3 and a maximum of 5 members, to monitor the conduct of the liquidation and approve the liquidator’s fees. The committee is usually established at the creditors’ meeting which appoints the liquidator, but in cases where a liquidation follows immediately on an administration, any committee established for the purposes of the administration will continue as the liquidation committee.

The liquidator must call the first meeting of the committee within 3 months of its establishment. Subsequent meetings must be held either at specified dates agreed by the committee, when requested by a member of the committee, or when the liquidator decides one needs holding. The liquidator is required to report to the committee at least every 6 months on the progress of the liquidation, unless the committee directs otherwise. This provides an opportunity for the committee to monitor and discuss the progress of the insolvency and the level of the liquidator’s fees.

In summary

Creditors involved in a liquidation will have a direct interest in who the appointed insolvency practitioner is and more importantly their potential costs. Payments going towards the liquidator will come out of the return to creditors, so they will want to monitor the progress of the liquidation. The liquidation committee can choose a basis on which to fix the liquidator fees while considering the case’s complexity, the insolvency practitioner’s effectiveness as a liquidator, and the value and nature of the assets.