CL Financial: Guiding Principles for Liquidators’ Remuneration

In a Nutshell

The Privy Council (“PC”), having surveyed guidance from the courts across the common law world, set out important guiding principles in relation to applications to approve the remuneration of liquidators, together with guidance on the information that should be provided to the court to support such applications. This guidance is also likely to be of wider application to all court appointed insolvency officeholders generally.

Usefully the PC confirmed that: (i) it is acceptable for liquidators to appoint themselves or colleagues to subsidiary boards when exercising shareholder rights; and (ii) government creditors have no special standing over others.

While the PC was determining an appeal from the Court of Appeal of Trinidad and Tobago, given the wide review of common law authority undertaken by the PC it is difficult to see why the guidance provided would not be applied by the Cayman Islands courts. Impact wise, while any outcome of a remuneration application will necessarily be fact sensitive insolvency officeholders should take care to ensure that their record keeping in support of remuneration charged ordinarily clearly identifies: (i) the task that the time relates to; (ii) why that task was undertaken; (iii) the time spent on each task; and (iv) the seniority of the person performing each task. While courts will not audit line by line, proportional but sufficiently detailed narratives will be essential, especially in more complex cases. Failure to do so carries the risk that when the court comes to approve the remuneration charged that it is unable to tick the necessary boxes to approve the remuneration. In short, adequate record keeping as to work undertaken is fundamental to insolvency officeholders getting paid.

Background

CL Financial, a company incorporated in Trinidad and Tobago, was in compulsory liquidation. It applied to the court for the approval of the remuneration of its liquidators for the calendar year 2019 and the application was opposed by the Government of Trinidad and Tobago, the largest single creditor of the CL Financial.

The High Court approved the remuneration, with the Court of Appeal reversing the decision. CL Financial appealed to the PC.

Guidance From the PC

General principles that apply to officeholder remuneration and expenses

• Officeholders appointed to administer an insolvent estate occupy a fiduciary position and they may not apply assets of the estate for their own benefit without proper authority.
• The burden is on officeholders to justify any remuneration for which they seek approval.
• If considering the evidence and having regard to the guiding principles there remains any element of doubt, such doubt should be resolved by the court against the officeholder.
• However, weight should be given to the fact that the officeholder is an officer of the court and, where applicable, is a member of a regulated profession and is subject to rules and guidance as to professional conduct. It may be assumed, unless the evidence suggests otherwise, that the officeholder is behaving with integrity. It does not, however, follow that the work undertaken by the officeholder was reasonable and proportionate on an objective basis. That is an issue to be decided by the court, the creditors’ committee or others responsible for approving the remuneration.
• The remuneration fixed by the court should be fair and reasonable for the work properly undertaken.
• There should not be unnecessary duplication in work and the information provided should be sufficient so the court can verify this point.
• The court will apply its own judgement and is not a rubber stamp but importantly the court’s role
  is not to engage in a line-by-line analysis of the officeholder’s claim.
• Officeholders do not need to seek approval for the payment of third-party expenses (such as legal fees). However, those expenses may be challenged by a creditor (or where there may be a surplus) a shareholder.

Sufficiency of information

While each case will be determined on its own particular circumstances the guidance below is likely to be applicable to most cases.

• As a starting point, there must be sufficient information to enable the court to have a clear view of what the officeholder has done and the information should be proportionate to the size of the insolvency and to the cost of preparing the information. The court should not be burdened with an overwhelming amount of detailed evidence, nor should the estate be burdened with the cost of producing it. More detail is, or is likely to be, required in a complex liquidation.
• At least in large insolvencies, time spent is usually the starting point and there is an overriding requirement that remuneration should be fair and reasonable. The officeholder must establish that the time costs were reasonably incurred – the officeholder must explain the nature of each main task undertaken, the considerations which led him or her to embark upon that task and why it was decided to persevere in it (what did the officeholder do and why did they do it). The time spent should be linked to this explanation so it can be seen what time was devoted to each task.
• The officeholder must establish, through sufficient information provided to the court, that the time costs were reasonably incurred which will involve looking at whether the work was: (i) reasonably undertaken; and (ii) performed by a person of appropriate seniority.

Whether work was reasonably undertaken will depend on a number of factors: (i) was there a statutory obligation to carry the work out; (ii) were other legal obligations being met by carrying out the work; and (iii) the steps taken to deal with the assets forming part of the estate must be reasonable (whether any particular action is reasonable will depend on the particular circumstances, but in general terms where the liquidator has a discretion as to the action taken, it means taking those steps which make commercial sense in terms of potential return for the benefit of the estate).

• An officeholder is expected to behave as a prudent person looking to their own commercial interests. For example, it may be reasonable to investigate possible claims. It does not follow that because in due course they fail or are abandoned that it was not reasonable to commence or pursue them (although an officeholder will have to re-examine periodically whether it remains reasonable to continue with them). This is an enquiry into proportionality – it is usually the reasonableness of the step when it was taken, rather than the actual outcome, which will be relevant.
• Appropriate seniority is dependent on the circumstances, but in essence it means the simpler or more routine tasks should be undertaken by the more junior staff, leaving the more senior members of team to deploy the important supervisory role over the process as a whole.

A final and additional useful point of clarification from the PC is that governmental authorities occupy the same position as all other creditors of equal standing to them – therefore such authorities do not have special standing or rights to challenge officeholder remuneration.

Decision

Applying the guidance above the liquidators’ remuneration report did not provide enough evidence to support the fee application. The description of the work undertaken was too general and brief. Generally, it was impossible to identify most of the tasks undertaken and therefore impossible to assess whether those tasks were reasonably undertaken and how long was spent on the task in question. The liquidation in question was complex with many workstreams (particularly involving subsidiary entities) which required more detailed information on the remuneration charged than would be the case in a smaller more straightforward liquidation. There was also no breakdown of the grades of partners and staff working on a task – so it was not possible to assess whether the tasks (at least those which could be identified) were undertaken by persons of the right level.

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¹ Attorney General of Trinidad and Tobago v CL Financial Ltd (In Liquidation) [2025] UKPC 41