Insolvency Officeholder's Fees And Expenses: Issues With Payment

• Published date: 06 November 2020
• Subject Matter: Wealth Management, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Wealth & Asset Management
• Law Firm: Shepherd and Wedderburn LLP
• Author: Serena Weir

In the recent case of Re CHF 2 Ltd [2020] EWHC 2685 (Ch), officeholders of insolvent 'unitised property ownership schemes' asked the High Court of England and Wales to order that their fees and expenses incurred in dealing with properties as part of the insolvency be paid out of the proceeds of selling leases over the properties held by investors. They ultimately abandoned their application, but the case is a useful reminder of the potential difficulty officeholders face in being paid for work carried out selling property in which other parties have an interest.

Re CHF 2 Ltd

This case involved 'unitised property ownership schemes' (the "Schemes") run by the Carlauren Group ("CG"), which bought a number of hotels, which it intended to turn into luxury care homes. Parties invested money into the Scheme, in return for (i) leases over individual rooms within the properties and (ii) the promise of a fixed return in the future. The Schemes ran out of funds before CG redeveloped many of the properties, and the various group companies became insolvent.

The properties were independently valued at '24.75 million if they were sold without the investors' leases in place. If the leases remained in place, the properties were valueless. The investors refused to surrender their leases. The officeholders initially asked the Court to extend the principle set out in Re Berkeley Applegate (Investment Consultants) Ltd [1989] Ch 32 (see below) to allow payment of their fees from the sale proceeds of the lease interests, rather than solely from the proceeds of the properties owned by CG. Otherwise, the costs of dealing with the lease interests would be borne by the companies' creditors, and not the investors, who were the ones who benefited from the work.

The principle in Berkeley Applegate

In Berkeley Applegate, the High Court of England and Wales decided that the Court had a discretion to order payment of the officeholder's fees and expenses from the sale proceeds of assets held in trust.

A Berkeley Applegate order is useful to officeholders and creditors alike. Such an order provides a means by which an officeholder's costs of realising certain assets may be met, where the assets owned by the insolvent company are insufficient. Ordinary creditors are also relieved of the burden of meeting the costs incurred in selling assets that will generate no return for them because the sale proceeds are payable to the trust beneficiaries.

The ability of the officeholder to recover costs...