Part 5 Costs and fees on annulment

July 2008

Part  5 Costs and fees on annulment

6A.68 Bankruptcy order made before 1 April 2004 - fees on annulment

(Amended April 2014)

In calculating the total costs, fees and charges for an annulment hearing the official receiver should include:

  • any debit balance still outstanding in respect of fees rightly applied to the estate before 1 April 2007;
  • the expenses of giving notice of the annulment application, i.e. the printing and postage costs, If there are more than 25 creditors [Note 1]. The cost of each notice sent should be charged at 40p to cover postage and production;
  • the official receiver’s costs of dealing with the application. These costs should be calculated on a time and rate basis together with any travelling expenses. The official receiver should estimate the number of court appearances there will be. Further information is contained in paragraph 6A.70; and
  • the official receiver’s costs of dealing with the annulment application are only payable if awarded by the court. The official receiver must include a request that the expenses be paid as part of the annulment report.

The bankrupt, or his/her advisors, should be informed of the official receiver’s outstanding costs, if any, as far in advance of the hearing as possible, to enable payment.

 

6A.69 Bankruptcy order made on or after 1 April 2004 - Fees on annulment

The Enterprise Act 2002 introduced a modernised financial regime. The calculation and treatment of fees is dependent on the date of the bankruptcy order. The full administration fee (fee B1) should only be charged when it can reasonably be said that the official receiver has undertaken material work on a case (such as the usual activities required to administer a bankruptcy case: conducting a first interview with the debtor, contacting creditors and, depending on when the annulment application occurs, the issuing of a report to creditors).

 

6A.70 Criteria for charging either full administration or time and rate fee

The official receiver's full administration fee (B1) should not be charged where, for example, he/she has not issued initial notices or committed other expenditure in the case.

The official receiver may decide it is appropriate to charge the full administration fee if the time and rate fee is likely to exceed the general administration fee (for example where considerable time and staff resources have been employed to secure assets or discover information to be able to submit the required report to court) even though the preliminary interview may not have been completed prior to the annulment application hearing. 

Where it is not justifiable to charge the full administration fee, the reduced administration fee to be charged should be calculated on a time and rate basis, by multiplying the hours spent by the official receiver and his/her staff against the hourly rate appropriate to their grade,  as set out in the Insolvency (Amendment) Regulations 2004.  See Chapter 36 Annex E or the LOLA Desk Instructions “Fees for New Regime cases” at http://intranet/FREA/EstateAccounts/ORServices/LOLADeskInstructions/NewFinancialRegime/FeesforNewRegimecase.htm for details of the current rates, including the maximum administration fee which can be charged, depending on the date of the bankruptcy order.

The time and rate calculation should exclude VAT in this instance as it is being used as a guide where the administration fee is not chargeable to its full extent (and the administration fee does not attract VAT).  The official receiver should  ensure that any disbursements incurred (e.g. costs of advertisement and gazette, insurance, travel and subsistence) are also added to the reduced administration fee to be charged (see also Chapter 36 paragraph 36.13).

 

6A.71 Disbursements covered by administration fee

(Amended February 2014)

The Insolvency Service's advertising agent sends a copy of the advertisement to the official receiver but if this has not yet been received then the agent should be contacted by telephone to establish the cost of the advertisement. 

Where the official receiver considers that the full administration fee should be charged it should be noted that the majority of disbursements (those actions carried out by the official receiver as part of his/her general duties e.g. reporting to court) are covered by the full fee (see paragraph 36.13) , but it does not cover the cost of any disbursements associated with the protection and realisation of assets, including insurance premiums (see paragraph 49.19) or the distribution of funds to creditors, as they are actions carried by the official receiver in connection with his/her role as trustee, in realising and distributing assets, and should be charged separately. On receipt of the monies the official receiver must pay the funds into the estate account. This instruction should be sent to EAS. See Chapter 36 part 1 for more information on fees and disbursements.

 

6A.72 Annulment on or after 1 April 2007

The Insolvency Fees Order 1986 was revoked in its entirety on 1 April 2007, by the Insolvency Proceedings (Fees) Amendments Order 2007, therefore fees limiters imposed by the Insolvency Fees Order 1986 (calculations to limit fees charged where the realisations are sufficient to pay all costs etc.) have ceased to exist where annulment occurs on or after 1 April 2007.

 

6A.73 Dealing with invoices received

Invoices received after 1 April 2004 and relating to cases where the bankruptcy order was made on or after 1 April 2004 should be sent to Finance Section.

 

6A.74 Costs of annulment

It is important for the official receiver to establish before the hearing, exactly who will be responsible for the costs of any annulment. The party making the application will require an estimate of the total costs incurred by the official receiver (see paragraph 6A.69 for more information on the calculation of fees).  The official receiver (or his/her representative) should attend the annulment hearing to ensure that the question of costs is dealt with satisfactorily, as this becomes more difficult to address after the annulment order has been made. The details of the costs including the party responsible for the payment of the costs, the exact amount of the costs and how they should be paid should be included in the order (Form 6.71). Even if payment of the costs has been made prior to the hearing the details should still appear in the annulment order. Ideally the petition deposit, held by the official receiver, should be retained by him as part of these arrangements (to simplify the accounting procedure).

 

6A.75 Trustee’s costs must be proportionate

In the recently reported case of Howard v Savage BPIR[2007] 1097, the court dealt with the assessment of the trustee’s remuneration and expenses following an earlier annulment and subsequent (dismissed) appeal by the trustee (Howard V Savage [2006]EWHC 3693(Ch).  The court held that the trustee had misled the court in his report, as to the extent of both interest and charges due to him. As a result, the court refused to accept the trustee’s estimated costs figure and assessed the trustee’s costs proportionate to the work already completed or required to be completed by him to enable the administration of the estate to be concluded.  The court further directed that the trustee pay his own costs, and refused to allow those costs to be indemnified out of the bankruptcy estate.

 

6A.76 Non-payment of official receiver’s costs (paid in full annulment)

The official receiver should normally oppose the making of, or at least the perfection of, any order of annulment until the relevant fees and expenses have been paid, either in cash or by way of reasonable security, such as a solicitor’s client account cheque. Where an annulment order on the grounds of payment in full is perfected without the official receiver’s fees and expenses having been paid or secured and the official receiver is unable to obtain payment of the total amount from the bankrupt, the official receiver should, after giving due warning to the bankrupt, apply for the order to be rescinded.

 

6A.77 Non-payment of official receiver’s costs following annulment on ought not to have been made grounds or approved IVA

If the official receiver is unable to obtain payment of his fees and expenses after an annulment order on the grounds of ought not to have been made or the approval of a voluntary arrangement (and in the latter case no satisfactory undertaking can be obtained from the supervisor of the voluntary arrangement [Note 2] ), the official receiver should carefully consider the what other possibilities are available to him/her.  

These may include:  

  1. Where funds arising from the realisation of assets are still held by the official receiver, these might legitimately be retained to cover his/her costs
  2. Writing to the bankrupt and seeking payment of costs.  The official receiver can inform the bankrupt that if agreement cannot be reached the official receiver wil seek a review of the annulment order and this could result in the debtor being declared bankrupt again.
  3. If the (former) bankrupt has failed to follow proper procedure in making the annulment application (such as not advising the official receiver of the hearing date therefore denying him/her the opportunity to seek his/her costs in the proceedings), the official receiver may make application under section 375 of the Insolvency Act 1986 for a review of the annulment order.

 

6A.78  Reporting insolvency practitioner where official receiver’s costs unpaid

The official receiver might wish to consider reporting the conduct of any insolvency practitioner who does not pay the official receiver’s costs (in due order of priority) in an IVA to his Recognised Professional Body but should first contact Insolvency Practitioner Section before doing so. As a general rule, when the former bankrupt is ordered to pay the costs and expenses of the official receiver and payment is not forthcoming, it is not improper for the official receiver to refer the matter back to the court but where a third party, usually the practitioner, is ordered to pay the costs, it would be wrong to attempt to reinstate the bankruptcy as a way of collecting the unpaid costs.

If there is a debit balance on the estate after the costs have been received, for example where the official receiver has mis-calculated his/her costs, the debit balance should be written off. For further information refer to the LOLA desk instructions or contact EAS. 

 

6A.79 Surplus funds

Any surplus funds held by the official receiver, after payment of all debts, costs, fees and expenses of and incidental to the proceedings (including statutory interest where applicable), should be returned to the former bankrupt or any other person properly authorised by him/her to receive them. Where the funds were provided by a third party, any surplus should be returned to that third party. The official receiver should seek to ensure that provision is made for the return of any surplus funds in the order of annulment (Form 6.71).

 

6A.80 Disbursement of surplus funds - no deferred creditors

With the increase in the number of cases with (substantial) assets being handled by official receivers , and the decision in the case of Gill v Quinn [2005] BPIR 129 (see paragraphs 6A.34 and 6A.35) consideration needs to be given to the disbursement of surplus funds in bankruptcy cases.

Where there are no deferred creditors, after the payment in full of all the bankruptcy creditors, statutory interest may then be paid to the creditors and any surplus remaining may be paid to the bankrupt (in accordance with sections 328 and 330(5) of the Insolvency Act 1986). 

 

6A.81 Disbursement of surplus funds where known creditors have not proved (amended April 2009)

Where a dividend of 100p in £ has been paid to proved unsecured creditors, but some of the known creditors have not proved their debts and therefore cannot be paid, the debts cannot be said to have been paid in full, thereby the payment of statutory interest (section 328(4) cannot be activated (see also paragraphs 6A.41 to 6A.43 concerning the judgment in Harper v Buchler and the payment of statutory interest in surplus cases).  Further, the payment of the surplus to the bankrupt (section 330(5)) cannot be made as all the bankrupt’s creditors have not been paid. 

Where the official receiver is dealing with this situation and creditors either refuse to prove or cannot be located, there is authority in the case of In Re Ward, Ex parte Hammond and Son v The Official Receiver and the Debtor [1942] Ch 294 to the effect that for the purposes of section 330(5), creditors means creditors who have proved in the bankruptcy. This case may therefore be used as the authority to overcome the problems referred to above.

If, prior to the declaration of a dividend, the appropriate steps to include the unproved creditors in the distribution have been taken correctly, (issuing of individual notices to unproved creditors to prove their claims and the publication of the notice of the intended dividend payment), and the official receiver pays the dividend at the rate of 100p in the £ (on the proved claims), he/she should consider that as being a payment in full, meeting the pre-condition to pay statutory interest [Note 3]. After ordinary unsecured (proved) creditors are paid in full, statutory interest is paid on the claims.

 

6A.82 Informing unproved creditors

When dividends are expected to be paid in such cases where known creditors have not proved (see paragraph 6A.81), additional wording may be added to form DVDL if the official receiver expects the rate of dividend to reach 100p in the £, to inform unproved creditors that remaining funds will be used to pay statutory interest to proved creditors, and the possibility that any surplus will be paid to the (former) bankrupt.

Remaining funds should be used to pay (proved) deferred creditors (if any) and statutory interest on those claims. Thereafter surplus funds may be paid to the (former) bankrupt.

 

6A.83 Release of (insolvency practitioner) trustee where monies remain in ISA

Cases have also be notified to the Service where insolvency practitioner trustees have sought their release on the completion of a bankruptcy case when monies, representing surpluses, remain in the Insolvency Services Account (ISA) and there are unpaid/unproved creditors. It appears that prior to the decision in Gill v Quinn (see paragraph 6A.34 to 6A.35), the trustee would have usually paid the surplus to the bankrupt in the expectation that they would apply for an annulment of the bankruptcy order on the payment in full grounds successfully.

As this is now less likely to occur, it seems that funds are being left in the ISA and are being passed back to the official receiver as trustee ex-officio on the release of the insolvency practitioner trustee. In such circumstances, EAS will inform the official receiver of the availability of these funds when it is hoped that official receivers will be able to deal with them following the guidance given above although that will involve obtaining information about the distribution(s) undertaken to date and details of the unpaid creditors from the insolvency practitioner trustee. Operationally, these cases may be passed to the RTLUs. 

 

6A.84 Summary re disbursement of surplus funds:

  1. After ordinary unsecured (proved) creditors are paid in full, statutory interest is paid on the claims.  
  2. When dividends are expected to be paid in such cases, additional wording may be added to form DVDL to inform unproved creditors that that is the case and of the possibility that any surplus will be paid to the (former) bankrupt.
  3. Remaining funds should be used to pay (proved) deferred creditors (if any) and statutory interest on those claims
  4. Thereafter surplus funds may be paid to the (former) bankrupt. 

 

 

6A.85 Interaction between the decisions in Re Ward and Gill v Quinn. 

The decision In Re Ward (see paragraph 6A.81) is not referred in the judgment in the case of Gill v Quinn and it is not known whether or not it was referred to in argument. It would appear to be the case that these two decisions are somewhat in conflict as following the decision in Re Ward, a (former) bankrupt can receive a surplus following the administration of a bankruptcy estate but, following the decision in Gill v Quinn, they cannot obtain an annulment of the bankruptcy order on the payment in full grounds where there are other than a very few known but unproved creditors.

The Court of Appeal held in Howard v Savage [2006]EWHC 3693(Ch),  that the district judge dealing with the annulment application was entitled to use his discretion in annulling the bankruptcy,  where he was in a position to say that, all known creditors would be paid or secured and it was unlikely that advertisement would bring forward any unidentified creditors (given the age of the bankruptcy), which was not the case in Gill v Quinn (referred to by the district judge).

Cases where this conflict is causing concern for official receivers, mainly where assets remain to be realised, may be referred to Technical Section for advice. 

 

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