High Court caps examiner remuneration at €375/hour for partners to ensure consistency and reasonableness in costs paid by creditors.

Neutral Citation Number: [2010] IEHC 394

THE HIGH COURT

2009 524 COS

IN THE MATTER OF MARINO LIMITED

AND IN THE MATTER OF THE COMPANIES ACTS 1963 – 2009

AND IN THE MATTER OF PERFECT PIES LIMITED

AND IN THE MATTER OF THE COMPANIES ACTS, 1963 – 2009

AND IN THE MATTER OF VIKRAM LIMITED

AND IN THE MATTER OF THE COMPANIES ACTS 1932 – 2009

AND IN THE MATTER OF MOUNT STREET PUB LIMITED

AND IN THE MATTER OF THE COMPANIES ACTS 1963 – 2009

(AS RELATED COMPANIES WITHIN THE MEANING OF SECTION 4(5) OF THE COMPANIES (AMENDMENT) ACT 1990)

JUDGMENT of Mr. Justice Clarke delivered the 29th July, 2010

1. Introduction

1.1 The Companies named in the title of these proceedings form part of the Capital Bars Group of Companies (“Capital Bars”). Kieran

Wallace of KPMG was appointed as an interim Examiner of Capital Bars on the 18th September, 2009. Subsequently, on the 6th

October, 2009, Mr. Wallace was confirmed as Examiner of Capital Bars.

1.2 The examinership continued, with various extensions of time being granted, right down to the wire. However, for reasons which

are not relevant to the issue which I now have to decide, the examinership process in respect of Capital Bars ultimately failed.

1.3 On that basis, the appointment of Mr. Wallace as Examiner was terminated and the protection of Capital Bars under the

Companies (Amendment) Act 1990 (“the 1990 Act”) ended. Thereafter, Mr. Wallace applied, under s. 29 of the 1990 Act, to the court

for an order for the payment of his remuneration and costs together with his reasonable expenses. By the time that application came

to be heard, a receiver had been appointed to Capital Bars. The receiver suggested, through counsel, that the rate of fees being

charged by Mr. Wallace was too high and suggested a reduction to which I will refer in due course. The fees sought were based on a

number of different hourly rates depending on the seniority of the personnel involved.

1.4 At or around that time, Kelly J. had reserved judgment in a similar application in Re Missford Limited T/A Residents Members Club

and the Companies Acts. I, therefore, indicated to the parties that I wished to consider the judgment which Kelly J. was due to

deliver in that case, but that I would afford the parties a further opportunity to be heard in the light of that judgment. I am of the

view, which I expressed at the time, that there is an obligation on the courts to ensure reasonable consistency in the approach

adopted to applications for the payment of examiners costs. It was for that reason that I wished to have the opportunity to consider

the views then to be expressed by Kelly J. in Missford.

1.5 Thereafter, judgment was delivered on the 17th June by Kelly J., (Missford Limited T/A Residents Members Club & the Companies

Acts [2010] IEHC 240). I subsequently afforded the parties an opportunity to make further submissions on the matter. This judgment

is directed towards the conclusions which I have reached. I should turn first to the decision in Missford.

2. Missford

2.1 In a review of the case law in Missford, Kelly J. quoted the observations of Hamilton C.J. in Re Coombe Importers Limited

(Unreported, Supreme Court, Hamilton C.J., 22nd June, 1995), where the following was stated:-

“There is no doubt that the court has jurisdiction to review and disallow the remuneration, costs and expenses of the

Examiner and in view of the priority given to such remuneration, costs and expenses there is an obligation on the court to

be vigilant in scrutinising an examiner’s application for sanction of payment.”

It should be pointed out that one of the issues which arose in Missford was as to whether some of the work in respect of which costs

were being sought by the examiner in that case, was work which was properly required of an examiner in the context of the

examinership concerned. There is no equivalent issue in this case. I indicated at the initial hearing of the application that I was

satisfied that the amount of work being claimed for by Mr. Wallace was reasonable, having regard to the course of the examinership.

As is normal practice, the examinership remained with one judge for almost its entire course (that judge being me), with only a number

of minor matters being dealt with by another judge due to my unavailability on one occasion. I was, therefore, fully familiar with the

course of the examinership and have no doubt but that the volume of work specified in the Examiner’s bill in this case is fully justified.

In addition, counsel on behalf of the receiver did not seek to suggest that the volume of work being charged for was in any way

inappropriate.

2.2 While the issues in Missford, therefore, turned not only on the rate of remuneration but also on the amount of work to which that

rate should be applied, the issues in this case concentrated solely on the rate of remuneration. While agreeing fully with the

comments of Kelly J. concerning the need for the court to apply scrutiny to the question of the volume of work being charged for

when determining the appropriate costs of an examiner, I am satisfied that no such issues arise on the facts of this case.

2.3 Like Kelly J., I also agree with the views expressed by Finlay Geoghegan J. in Re Sharmane Limited [2009] IEHC 377, where she

said:-

“There are no statutory criteria according to which the Court should determine what constitutes reasonable remuneration

for the purpose of section 29. It does not appear to me that this can be determined by reference only to the total

charge-out costs computed from the hours spent and relevant hourly rate for the Examiner and those working with him.

This may, of course, comprise one element to be taken into account in determining what reasonable remuneration is.

However, in my view, it should not be the only element, and in determining what is reasonable remuneration the Court

must also have regard to the nature of the work carried out, the complexity of the work and the importance or value of

the work to the client. These would be common elements taken into account by professionals charging or seeking to

agree fees with clients.”

2.4 The examiner’s costs in Missford were based, as is common practice and the case in this application, on an hourly rate,

differentiated having regard to the seniority of personnel involved. As noted by Kelly J. at p. 10, the examiner in Missford charged an

hourly rate of €425.00. Other staff had respective charge out rates ranging downwards from €210.00 to €100.00 per hour.

2.5 The principal conclusions of Kelly J. commenced by noting that the charge out rate at partner level of the examiner in that case

of €425.00 had remained unchanged since January, 2007. Having searched for a comparator, Kelly J. noted that fees payable in

respect of publicly funded criminal work in the legal profession had been subjected to reductions of, at least, 16% since 2007. Kelly J.,

therefore, imposed such a reduction across the board leading to a rate of €357.00 in respect of the examiner, with rates ranging

down from €176.40 to €84.00 for other staff.

2.6 In addition to Missford, I raised with counsel for Mr. Wallace another practical example of costs of an examiner which had, as it

happens, come before me in the period between the initial application for the approval of costs in this case and the final hearing. The

case in question involved the examinership of B.A. Engineering. In that case the examiner and a member of the examiner’s firm of

accountants, at partner level, operated a charge out level of €300.00 with one manager level member of the same firm being charged

out at €125.00. It is in the context of the rates approved in Missford and B.A. Engineering, that I must approach the hourly rates

sought in this case. The rates sought for persons at partner level are €560.00, while rates for other members of the firm range

downwards from €405.00 for an Associate Director to €100.00 for a Trainee Accountant.

2.7 Against that general background and in the light of submissions made by counsel on behalf of Mr. Wallace, I should turn first to

the general principles applicable.

3. General Principles

3.1 As pointed out by Kelly J. in Missford and Finlay Geoghegan J. in Sharmane, the statutory scheme does not give any guidance as

to the criteria to be taken into account in assessing fees of an examiner. However, as pointed out by Hamilton C.J. in Coombe

Importers, the court has an obligation to be vigilant in scrutinising any application for costs. The reason identified by Hamilton C.J. for

the obligation on the court to be particularly vigilant in such scrutiny stems from the fact that the fees of an examiner are given an

exceptional level of priority as to payment under the provisions of s. 29(3) of the 1990 Act. That subsection provides that the

remuneration, costs and expenses of an examiner, which have been sanctioned by order of the court, are to be paid “before any

other claim, secured or unsecured”, and whether arising under a scheme of arrangement or in the event of a failed examinership in

any receivership or winding up of the relevant company.

3.2 A number of points need to be addressed. First, it should be noted that the question of the level of examiner’s fees is only likely,

in practice, to be a matter for the court in cases of a failed examinership. Where the examinership succeeds, with a scheme of

arrangement being approved by the court, then it is inevitable that the arrangements for which provision has to be made, in the

context of that scheme of arrangement, must include the costs of the examiner. In order for a viable scheme to be put in place, it is

necessary that there be sufficient funds to meet whatever liabilities of the company are to be paid on foot of the scheme and to

provide the relevant company with sufficient funds to enable it to have a viable prospect of survival post examinership. Clearly the

equation which presents itself at such a time involves there being sufficient funds to pay whatever has to be paid to the examiner as

part of such an arrangement. Indeed, it was quite properly noted by counsel on behalf of Mr. Wallace (on Mr. Wallace’s instructions)

that it was not unusual, in practice, for negotiations to take place, as a potentially viable scheme of arrangement began to emerge,

during which the relevant examiner might be required to negotiate a reduced level of costs to enable the sums to add up. Indeed,

such a practice is one with which most lawyers will be familiar in the context of the settlement of litigation, where it is a not

infrequent occurrence that a defendant wishes to fix its total liability (including any liability for costs) at the time of settlement. In

such circumstances either a global amount inclusive of costs or two separate sums for damages and costs are often negotiated. In

either case, it is not uncommon for lawyers to have to make some reduction in what might otherwise be their fees in order to

facilitate a settlement.

3.3 Indeed, based on the fact that it was accepted on behalf of Mr. Wallace that such arrangements were not unusual, it was

intimated on his behalf that a reduction of 10% in the overall level of fees sought on an hourly basis might not be unreasonable to

reflect the fact that arrangements of that type would not be uncommon as part of the finalisation of a scheme of arrangement in the

case of a successful examinership.

3.4 There are, however, other consequences of the statutory regime. In the case of failed examinership it is almost inevitable that

the company will either be placed into liquidation or go into receivership (or, indeed, both). The company concerned is, by definition,

insolvent or else it could not have been admitted into examinership in the first place. In those circumstances, it is the creditors of the

company who, in practice, have to bear the costs of the examinership. While the precise creditors on whom such a burden may fall

may vary from case to case depending on just how insolvent the relevant company is, it remains the case that it is one or more class

of creditors who will ultimately end up having to forego payment because of the super priority given to the examiner’s costs. It was,

indeed, for that reason that the receiver was the obvious legitimus contradictor in this case.

3.5 However, it also follows that there are some similarities between party and party costs of litigation and the costs of examiners in

the case of a failed examinership. Like all analogies it should not be pushed too far. However, the reason for exercising scrutiny is

broadly the same. In litigation the successful party is entitled to have its costs paid on a party and party basis by the loser. It follows

that the amounts which it may be reasonable to impose on that losing party need to be scrutinised. On the one hand parties should

be entitled to incur reasonable expense in bringing successful cases to court and should not be unduly penalised by not allowing

proper recovery of those costs in the event that they should succeed and have costs awarded to them. On the other hand, there

must always be significant scrutiny in cases where one person is being expected to pay sums incurred by someone else. Like

considerations apply in an examinership. While the examiner is appointed by the court, it will almost inevitably be the case that the

examiner will be nominated by whoever petitions the court (almost always the company or its principals). In the case of a failed

examinership, it is, as was argued by counsel for the receiver, the creditors who will end up paying for costs incurred at the

instigation of the company or its principals.

3.6 It is next necessary to deal with some specific points made by counsel on behalf of Mr. Wallace as a commentary on the judgment

of Kelly J. in Missford. Kelly J. made the point that customers generally of an insolvency practitioner who acts as an examiner cannot

be expected to subsidise pro bono work done by that examiner or other work done at a reduced rate for, for example, professional

bodies, no matter how praiseworthy undertaking such work may be. While not questioning that proposition, counsel made the point

that insolvency practitioners generally do suffer risk as to payment.

3.7 It certainly is the case that there are liquidations where the insolvency practitioner appointed as liquidator, either is not paid at

all, or can only obtain a significantly reduced payment because of the lack of funds coming into the company concerned. Like most

areas of professional life there is some risk that an insolvency practitioner will, in the course of a year, undertake work for which he or

she will not be paid or will be paid, in practice, at a rate far below what might be described as “the going rate”. There can be little

doubt that, as with any form of commercial enterprise, such practitioners are likely to “price in” the fact that they may, on average,

not recover everything that they might theoretically be entitled to, when deciding their general rates. That is not a cross subsidy.

Rather it is a general condition of the market place in which such practitioners have to operate. In substance, it is no different from a

supermarket having to take into account the fact that it will suffer some wastage, in calculating the mark up which it needs to charge

in order to make a profit at the end of the day.

3.8 While accepting that point, it does not seem to me that it either undermines anything said by Kelly J. in Missford or, indeed, is of

particularly great significance in respect of an examinership. It is, of course, possible that an examiner might not be paid for his work.

However, having regard to the very high level of priority which is given to the payment of examiner’s costs, it does not seem to me

that the payment of examiner’s fees carries with it a particularly high level of risk of non payment. Indeed, as was noted by Kelly J. in

Missford, it was the practice of the examiner in that case to charge a lower level of fees when nominated by the Revenue

Commissioners to reflect the fact that there was a certainty of recovery.

3.9 It is true to say that Kelly J. placed some reliance on the fact that the examiner in Missford had also been appointed as receiver

over that company. That is not the case here, in that Mr. Wallace has no continuing formal role in respect of Capital Bars. I am not,

however, convinced of the significance of the distinction for the issue which I have to decide.

3.10 Next counsel queried the appropriateness of the comparator used by Kelly J. involving criminal lawyers. The point was made that

payment under the Criminal Legal Aid Scheme or from the Director of Public Prosecutions is guaranteed. That is true so far as it goes.

Next it was pointed out that the market for the services of insolvency practitioners is counter cyclical, with there being more work

when times are bad. On that basis, it was suggested that the market would not be likely to lead to the same fall off in the fees of

insolvency practitioners as might be encountered in other areas. While there may be some overall validity in that point I am, for the

reasons which I have sought to analyse, faced with having to strike a balance involving the legitimate interests of creditors who are

now being asked to foot the bill, in practice, for a process that they did not instigate. As pointed out by Finlay Geoghegan J. in

Sharmane, the exercise of scrutinising the fees of an Examiner is not confined to identifying that the hours charged for were actually

worked and were necessary, and that the rates per hour are as per the relevant professionals normal charge out rates. Rather the

court is required to take an overall view as to whether the costs being imposed on the creditors are, in all the circumstances of the

case, reasonable. While the normal rates charged in the marketplace and the normal rates charged by the individual practitioner are

significant factors, those rates are not the only matters to be taken into account. I am not, therefore, satisfied that there is any

proper basis for departing from the views of Kelly J. as expressed in Missford.

3.11 Counsel did also make a point which, in my view, has some merit. The practice has evolved of the question of examiner’s costs

coming to be fixed well after the examinership has been completed. As I have already pointed out it is likely, in the context of a

successful examinership, that such costs will be agreed at the stage of the finalisation of the scheme of arrangement, for that

scheme will need to make provision for those costs in any event. However, in the case of failed examinerships, the costs are normally

only fixed after the event. It was pointed out by counsel that that practice can be somewhat unfair, in that a person is being asked

to take on work without any agreement as to their rate of pay. Speaking for myself, I would be more than happy, in the future, to fix

the basis on which the remuneration of an examiner is to be determined at a much earlier stage of the process, for example, at the

original petition hearing or even, if it should prove practicable, on the occasion of the appointment of an interim examiner. In that

context I should, however, emphasise the comments made by Finlay Geoghegan J. in Sharmane to the effect that appropriate costs

are not necessarily determined solely by applying an hourly charge at various rates, depending on the seniority of the personnel

concerned. As there may well be discussion between the company and/or its principals with a possible examiner prior to appointment I

would welcome the disclosure of the results of any such discussions relating to costs at an early stage.

3.12 It is clear that there are very significant variations in the hourly rates which are apparently charged by examiners or partner

level colleagues who work with the examiner concerned. The rate of €560.00 per hour sought in this case is, I am satisfied, Mr.

Wallace’s normal charge out rate. Even before the reductions imposed by Kelly J. in Missford, the relevant charge out rate for partner

level personnel in that case was €425.00. As I have pointed out, the partner level rate sought and obtained in B.A. Engineering was

€300.00 per hour. Counsel for the receiver suggested a reduction of €100 per hour across the board which would lead to a rate of

€460 per hour for those at the highest level. Given the obligation to ensure that costs are reasonable to all concerned and against

that factual background, it is next necessary to say something about the extent to which it is appropriate for the court to allow

different rates in different cases.

4. Should there be a Uniform Rate

4.1 In the course of debate, the point was made by counsel on behalf of Mr. Wallace that there may be valid explanations for

variations in the rates charged by different practitioners. Sometimes the payment of an hourly rate is presented as the most

transparent way of determining an appropriate level of remuneration for professionals. While such a method of charging has its merits,

it is, in my view, possible to exaggerate the extent to which it may provide an entirely transparent way of charging. In that context I

am not dealing with questions as to whether the hours claimed were actually worked, for as I have pointed out, there is no question

in this case but that the relevant hours were actually worked. However, persons of different experience and expertise may well be

able to do the same work in very different periods of time. Doubtless the differential rates charged by different personnel within the

same firm, at least in part, reflects that fact. There can be little doubt but that large firms, which may have a significant level of

expertise in different areas available within the same firm, may be able to bring efficiencies to bear on the conduct of work which

would not be available to a smaller firm. On the other hand, large firms typically have higher overall overheads not otherwise

recovered from clients. It does need to be recalled that a charge out rate by a professional in a firm is not the same as that person’s

pay. Those overheads of the firm which are not directly charged to clients need to be met out of the fees charged. It is possible that

a large firm may not cost more at the end of the day if higher hourly rates might be offset by lower number of hours. However, even

that factor is itself variable for not all work is of a type which can be shortened by expertise or experience.

4.2 Having regard to the variety of factors that could legitimately be taken into account, it does not seem to me that it would be

appropriate to impose a single fixed hourly rate, nor to insist that the hourly rate method is the only means by which the level of

remuneration of examiners should be calculated. On the other hand, while recognising that there may be legitimate factors which may

lead to different rates being charged by different firms, it seems to me that, in the context of a process where an examiner is

appointed by the court and where the court is under a duty to carefully scrutinise the costs of the examiner because those costs are

ultimately going to be paid by someone other than those who are directly or indirectly involved in the appointment of the examiner in

the first place, it is not appropriate for a court to countenance a very wide disparity in the rates of remuneration that should be paid

to examiners.

5. Conclusions

5.1 Having regard to the rate fixed by Kelly J. in Missford, the rate sought and approved in B.A. Engineering, and the rate suggested

by the receiver, I find it difficult to accept that, even in the case of the largest of firms with the highest of overheads (with, it must

be assumed, corresponding efficiencies leading to a reduction in the amount of hours being charged for), it would be appropriate to

allow a rate in excess of €375.00 per hour for those at partnership level.

5.2 On that basis, I propose allowing €375.00 per hour for those at partner level in this case. On the same basis, it seems to me that

the rate for Associate Director should be €300.00 per hour, that for Manager €260.00 per hour, that for Senior Accountant €200.00

per hour, and that for Trainee Accountant €80.00. When a calculation as to the precise total amount due on that basis has been

made, I will approve the examiner’s costs and expenses in that sum together with the other items of the examiner’s costs which are

not in contention in this hearing. I have conducted a rough calculation on that basis and am satisfied that the total that would be

determined as a result of that calculation would meet the broad criteria of being reasonable having regard to difficulty, importance

and value identified by Finlay Geoghegan J. in Sharmane.

J.