The Investment Bank Special Administration (England and Wales) Rules 2011

PART 4 Expenses of the special administration

Expenses of voluntary arrangement

133.  Where a special administration order, a special administration (bank insolvency) order or a special administration (bank administration) order is made and a voluntary arrangement under Part 1 of the 1986 Act is in force for the investment bank, any expenses properly incurred as expenses of the administration of the arrangement in question shall be payable in priority to any expenses in rule 134.

Expenses to be paid out of the investment bank’s assets

134.—(1) Subject to rule 135, the expenses of the administration to be paid out of the assets of the investment bank are payable in the following order of priority—

(a) expenses properly incurred by the administrator in performing the administrator’s functions in the special administration;

(b) the cost of any security provided by the administrator (and, in a special administration (bank insolvency) or a special administration (bank administration)), the cost of any security provided by a person appointed under rule 30 or 49 in accordance with the Regulations or the Rules;

(c) in a special administration (bank insolvency) or a special administration (bank administration), the remuneration of a person appointed under rule 30 or 49;

(d) in a special administration (bank insolvency) or a special administration (bank administration), any deposit lodged on the application for the appointment of a person appointed under rule 30 or 49;

(e) where an administration order was made, the costs of the applicant and any person appearing on the hearing of the application;

(f) any amount payable to a person employed or authorised, under Chapter 1 of Part 3 of the Rules, to assist in the preparation of a statement of affairs or statement of concurrence;

(g) any allowance made, by order of the court, towards costs on an application for release from the obligation to submit a statement of affairs or statement of concurrence;

(h) any necessary disbursements by the administrator in the course of the special administration (including any expenses incurred by members of the creditors’ committee or their representatives and allowed for by the administrator under rule 119, but not including any payment of corporation tax in circumstances referred to in sub-paragraph (k) below);

(i) the remuneration or emoluments of any person who has been employed by the administrator to perform any services for the investment bank, as required or authorised under the Regulations or the Rules;

(j) the administrator’s remuneration for services in pursuit of—

(i) Objective A in a special administration (bank insolvency),

(ii) Objective A in a special administration (bank administration), and

(iii) Objectives 2 and 3,

the basis of which has been fixed under rules 29 or 48 or Chapter 2 of Part 7 of these Rules, and

(iv) unpaid pre-administration costs approved under rule 136 for work done in pursuit of these objectives; and

(k) the amount of any corporation tax on chargeable gains accruing on the realisation of any asset of the investment bank (without regard to who the realisation is effected by).

(2) The priorities laid down by paragraph (1) of this rule are subject to the power of the court to make orders under paragraph (3) of this rule where the assets are insufficient to satisfy the liabilities.

(3) The court may, in the event of the assets being insufficient to satisfy the liabilities, make an order as to the payment out of the assets of the expenses incurred in the administration in such order of priority as the court thinks just.

(4) For the purposes of paragraph 99(3) and subject to rule 135, the former administrator’s remuneration and expenses shall comprise all those items set out in paragraph (1) of this rule.

Expenses to be paid out of the client assets

135.—(1) The expenses of the special administration to be paid out of the client assets held by the investment bank are payable in the following order of priority—

(a) subject to rule 136, expenses properly incurred by the administrator in pursuing Objective 1;

(b) any necessary disbursements by the administrator in the course of the special administration specific to the achievement of Objective 1 (including any expenses incurred by client members of the creditors’ committee or their representatives and allowed for by the administrator under rule 119 but not including any payment of corporation tax in circumstances referred to in rule 134(1)(k));

(c) the remuneration or emoluments of any person who has been employed by the administrator to perform any services for the investment bank specific to the achievement of Objective 1, as required or authorised under the Regulations or the Rules; and

(d) the administrator’s remuneration the basis of which has been fixed under rule 196 and unpaid pre-administration costs approved under rule 136 in respect of the work done in pursuance of Objective 1.

(2) The priorities laid down by paragraph (1) of this rule are subject to the power of the court to make orders under paragraph (3) of this rule where the client assets are insufficient to satisfy the liabilities.

(3) The court may, in the event of the assets being insufficient to satisfy the liabilities, make an order as to the payment out of the assets of the expenses incurred in the administration in such order of priority as the court thinks just.

(4) For the purposes of paragraph 99(3) the former administrator’s remuneration and expenses incurred in respect of the pursuit of Objective 1 shall comprise all those items set out in paragraph (1) of this rule.

Pre-administration costs

136.—(1) Where the administrator has made a statement of pre-administration costs under rule 59(2)(m), the creditors’ committee may determine whether and to what extent the unpaid pre-administration costs set out in the statement are approved for payment.

(2) But if—

(a) there is no creditors’ committee; or

(b) there is but it does not make the necessary determination; or

(c) it does do so but the administrator or other insolvency practitioner who has charged fees or incurred expenses as pre-administration costs considers the amount determined to be insufficient,

paragraph (3) applies.

(3) When this paragraph applies, determination of whether and to what extent the unpaid pre-administration costs are approved for payment shall be by resolution of—

(a) where the pre-administration costs were incurred in pursuance of Objective A, or Objectives 2 and 3, a meeting of creditors;

(b) where the pre-administration costs were incurred wholly in pursuance of Objective 1, a meeting of clients; or

(c) where the pre-administration costs were incurred in pursuance of Objective 1, Objective A and Objective 2 and 3, a meeting of creditors and clients.

(4) The administrator must call a meeting of the creditors’ committee or a meeting under paragraph (3) if so requested for the purposes of paragraphs (1) to (3) by another insolvency practitioner who has charged fees or incurred expenses as pre-administration costs; and the administrator must give notice of the meeting within 28 days of receipt of the request.

(5) If—

(a) there is no determination under paragraph (1) or (3); or

(b) there is such a determination but the administrator or other insolvency practitioner who has charged fees or incurred expenses as pre-administration costs considers the amount determined to be insufficient,

the administrator (where the fees were charged or expenses incurred by the administrator) or other insolvency practitioner (where the fees were charged or expenses incurred by that practitioner) may apply to the court for a determination of whether and to what extent the unpaid pre-administration costs are approved for payment.

(6) Paragraphs (2) to (4) of rule 200 apply to an application under paragraph (5) of this rule as they do to an application under paragraph (1) of that rule (references to the administrator being read as references to the insolvency practitioner who has charged fees or incurred expenses as pre-administration costs).

(7) Where the administrator fails to call a meeting of the creditors’ committee or a meeting under paragraph (3) in accordance with paragraph (4), the other insolvency practitioner may apply to the court for an order requiring the administrator to do so.

Allocation of expenses to be paid from client assets

137.—(1) The administrator shall set out, in the distribution plan under rule 144, how the administrator proposes that the expenses of the special administration, to be paid out of the client assets in accordance with this Chapter, are to be allocated between client assets.

(2) Where paragraph (1) applies and, as a result of this, on the court approving the distribution plan in accordance with rule 146, there is a shortfall in the amount of assets to be returned to a client—

(a) that shortfall is to be treated as a debt owed to the client by the investment bank arising before the investment bank entered special administration; and

(b) where those assets are securities, the claim is to be valued in accordance with rule 91and for this purpose the references to “chair” in rule 91 shall be read as references to the administrator.