The Buchler Phillips preferred approach of ‘work out, not bail out’ will resonate with stricken companies heading for insolvency – not least because of the often hefty cost of advisers, court-appointed and otherwise, in administrations and liquidations, including those that are voluntary.
Clearly not all businesses working with restructuring firms and Insolvency Practitioners (IPs) can be turned around in time, unfortunately leaving an orderly closure the only option. However, an important High Court judgment this month has highlighted how insolvency costs can escalate, sometimes unfairly, if a change in circumstances requiring greater fees is perceived by an IP, yet not agreed in advance by a company in a voluntary liquidation.
The case of Cork (and another) v Penfold (and another) [2025] EWHC 1356 (Ch) is instructive regarding insolvency office-holders’ remuneration, specifically about applications made under rules 18.24 and 18.28 of the Insolvency Rules 2016 to seek increases in the rate or amount of remuneration or a change in its basis.
The Court had two applications before it, made by the joint liquidators of two related commercial property development companies: Henry Walters Limited (HWL) and Old Manor Homes Limited (OMHL). The companies had entered liquidation following a breakdown in relations between their sole equal shareholders and directors.
The office-holders’ remuneration had been fixed at a rate of 5% on realisations. By their applications, they sought an increase in their remuneration in respect of HWL to a rate of 9% of realisations, and in respect of OMHL to a rate of 6.3% of realisations.
The applications were made on the basis that the overall workload required in both the HWL and OMHL liquidations exceeded that which had been anticipated and allowed for when fixing the original basis of remuneration.
ICC Judge Greenwood dismissed both applications, finding that in substance, they were both applications for a change in the basis of remuneration rather than for an increase in its rate, and that they had both been made only after the work in question had been done, such that the Court and the Respondents were presented with a fait accompli.
The Court also held that the existing bases of remuneration were the product of a commercial, freely negotiated agreement, made in circumstances where the work said to have been unanticipated was foreseeable from the outset. Finally, it found that the evidence for the amount and value of the work done by the office-holders was not adequate to support the claims made.
The case is a salutary lesson for all IPs: be upfront, transparent and communicate any prospect of changed circumstances as soon as it arises. These are responsibilities as office-holders that ensure a fair deal for all involved in a liquidation.
Buchler Phillips is an independent boutique firm, with an impeccable Mayfair London heritage, specialising in corporate recovery, turnaround, restructuring and insolvency.