Fees agreed with a secured creditor not open to challenge as remuneration

A company owed around £86m secured by way of fixed and floating charges. The company’s interest in a former aluminium smelting plant was its most realisable asset and was subject to a fixed charge. The value of the land was less than the debt secured under the fixed charge and there was no prospect of a surplus.

The original security trustee agreed a fixed fee with both the administrator and the administrator's solicitors based on a percentage of the price obtained for the land. The land was sold for £35m, giving rise to handsome realisation costs of £3,520,000, a figure far in excess of what would have been payable on a time costs basis. In the intervening period, the security trustee had been replaced and its successor applied to challenge the remuneration as excessive under IR 18.34. The application failed.  

The Court held IR 18.34 did not apply to fees a secured creditor had agreed with the administrator for the realisation for the charged asset. Remuneration for the purposes of IR 18.34 is not payable from fixed charged property - it is determined without reference to wholly secured creditors who hold fixed charge security. The administrator's only right to payment came from a contractual agreement with the secured creditor, not the remuneration regime under the rules. The subsequent security trustee could not use IR 18.34 to unstitch that agreement which, as it turned out, was a good deal for the office holder and its advisors.

The Court also gave a reminder to draft progress reports with care. The October 2022 progress report stated “at the end of the reporting period [28 September 2022], there had been no remuneration drawn. Since that date however….based on the fee structure above, total remuneration across the two states has become payable of £2,750,000.” That was not considered to be a sufficiently clear statement that those fees had been charged and incurred during that reporting period, even though the sales completed during the reporting period. Accordingly, the 8 week time period to challenge remuneration ran from April 2023 when the amount that had become payable and drawn during that reporting period was set out, even though the basis of the fee, and the fact most had fallen due, had already been set out in a progress report 6 months earlier. Although it made no difference to the outcome, it did highlight that tighter drafting of the progress report could have led to the challenge period expiring 6 months earlier than it did.

Pagden v Ridgley (in Re Orthrios Eco Parks (Anglesey) Limited [2024] EWHC 3047

Our content explained