Practice statements - Proportionality - Remuneration - Trustees in bankruptcy

Helen Brook v Nicholas Edward Reed (trustee in bankruptcy of the estate of Helen Brook): CA (Civ Div) (Lady Justice Arden, Lord Justice Black, Mr Justice David Richards): 25 March 2011

The appellant bankrupt (B) appealed against a decision fixing the remuneration of the trustee in bankruptcy (R).

B ran a small retail flower business.

She did not keep up with her VAT payments and was made bankrupt on a petition by HM Revenue & Customs.

R was appointed as trustee.

It was agreed that B’s husband would purchase the business and assets for £10,000.

In addition to the flower shop business, the other substantial asset in B’s estate was a half-share in the matrimonial home valued at about £165,000.

B made an application for annulment of her bankruptcy.

The claim of the Revenue was settled at £15,177. B’s bank was a creditor for a total of £10,347 on two unsecured accounts, a current account and a loan account. The annulment application was adjourned more than once.

There were issues as to whether and, if so, how debts had been paid, and B was challenging the amount of the bankruptcy costs and disbursements.

A meeting of creditors, attended by the Revenue by proxy, had resolved that R’s remuneration should be fixed by reference to the time properly given by him and his staff in attending to matters arising in the bankruptcy.

At first instance, the district judge fixed R’s costs and remuneration at £20,354, with additional disbursements of £2,890, and assessed his solicitors’ costs at £23,086, together with a small amount for disbursements.

On appeal the judge, sitting with two assessors, fixed R’s costs and remuneration, excluding disbursements, at £9,929 and assessed the solicitors’ costs at £10,038.

R’s disbursements and most of the solicitors’ disbursements were also allowed.

B argued that even the reduced figure for R’s remuneration was disproportionately high in relation to the circumstances of the bankruptcy, did not have regard to the Practice Statement (Ch D: Fixing and Approval of Remuneration of Appointees) [2004] BCC 912 Ch D, and in particular to the principle that the remuneration of the trustee in bankruptcy should reflect and be fixed so as to reward the value of the service rendered by him, not simply to reimburse him in respect of time expended and cost incurred, and did not properly take into account the status of the trustee in bankruptcy as a fiduciary.

Held: (1) The Practice Statement of itself could not make law on substantive issues or require courts to apply the guiding principles stated in it.

But the Practice Statement was not an attempt to create a new set of principles, but a convenient means of gathering together in one place the principles to be derived from the Insolvency Rules and authority, Mirror Group Newspapers Plc v Maxwell (No1) [1998] BCC 324 Ch D considered.

The Practice Statement acquired authority as a statement of guiding principles if it was expressly approved and applied as such in judgments at an appropriate level, and it had been.

Although the guiding principles were expressed to apply to applications for fixing and approving remuneration, it was clear that they would be applied also to a challenge, taking into account that the remuneration or its basis had been duly fixed under the Insolvency Rules by a relevant body, such as a creditors’ committee or meeting of creditors.

A court hearing an application to fix or to challenge the remuneration of an office-holder should proceed on the basis that the Practice Statement was to be applied, except in so far as in the circumstances of the particular case the party objecting to its application showed that it would be wrong in principle to do so (see paragraphs 42-48 of judgment).

(2) The principles set out in the Practice Statement should have been expressly applied, but that omission was not a ground for allowing the appeal. The judge applied what were fundamentally the relevant criteria.

He examined in some detail, with the benefit of the assessors, the remuneration claimed and the work done, in terms of value more than time, bearing always in mind the need to arrive at a figure which was proportionate to the circumstances of the bankruptcy.

It was not open to the judge wholly to disregard the time spent by R, both because it was a relevant, but not decisive, factor in any case and because the basis of his remuneration had been fixed at the meeting of creditors.

In relation to the issue of proportionality, the number and size of claims and the number and value of assets was an important, but not the only, element in the circumstances of the bankruptcy.

There were many ways in which costs could properly be incurred which were not related, principally or even at all, to the assets and liabilities of the estate.

In the instant case, B’s conduct in relation to the application to annul plainly did increase R’s costs. As to the issue of hourly rates, B adduced no evidence as to local charging rates and the judge and the assessors must have had some knowledge of those rates.

B had had the benefit of a detailed examination of R’s remuneration, resulting in a very substantial reduction. Applying expressly the principles in the Practice Statement, the result would not be materially different (paragraphs 86-90).

Appeal dismissed.

Jane Lambert (instructed by Public Access Rules) for the appellant; Stephen Davies QC (instructed by Eversheds) for the respondent.