ESG Reinsurance Ireland Ltd (Under Administration) and the Insurance (No. 2) Act 1982 (as amended) Accent Europe Insurance Company Ltd (Under Administration) and the Insurance (No. 2 ) Act 1983 (as amended)

• Jurisdiction: Ireland
• Court: High Court
• Judge: Mr. Justice Kelly
• Judgment Date: 02 November 2010
• Neutral Citation: [2010] IEHC 365
• Date: 02 November 2010

[2010] IEHC 365

THE HIGH COURT

[No. 807 COS/2009]

[No. 808 COS/2009]

ESG Reinsurance Ireland Ltd & Accent Europe Insurance Company Ltd, in Re

[2010] IEHC 365

IN THE MATTER OF ESG REINSURANCE IRELAND LIMITED (UNDER ADMINISTRATION) AND IN THE MATTER OF THE INSURANCE (NO. 2) ACT 1982 (AS AMENDED)

IN THE MATTER OF ACCENT EUROPE INSURANCE COMPANY LIMITED (UNDER ADMINISTRATION) AND IN THE MATTER OF THE INSURANCE (NO. 2) ACT 1983 (AS AMENDED)

INSURANCE (NO 2) ACT 1983 S3(4)(B)

COMPANIES (AMDT) ACT 1990 S29

COOMBE IMPORTERS LTD, IN RE UNREP HAMILTON 22.6.1995 1995/6/1949

MISSFORD LTD T/A RESIDENCE MEMBERS CLUB, IN RE UNREP KELLY 17.6.2010 2010 IEHC 240

MARINO LTD & ORS, IN RE UNREP CLARKE 29.7.2010 2010 IEHC 394

SHARMANE LTD & ORS, IN RE 2009 4 IR 285 2009/53/13279 2009 IEHC 377

COMPANY LAW

Administration

Administrator - Court appointed - Insurance company - Duty on court to fix costs, expenses and remuneration of administrator - Absence of statutory criteria - Functions of administrator - Running business of companies - No entitlement to apply to insurance compensation fund - International dimension - Skills of insolvency expert - Hourly rates reflecting complexity and scale of work - Reasonable remuneration - No alteration in hourly rate since 2008 - Radically altered economic climate - Whether appropriate for court to countenance very wide disparity in rates of remuneration - Reduction applied - Whether legal adviser to administrator permitted to charge fees at a higher rate than administrator - Whether administrator at liberty to invoice company and pay solicitors without future reference to court - Re Coombe Importers Ltd (Unrep, SC, 22/6/1995) applied; Re Missford Ltd t/a Residence Members Club [2010] IEHC 240 (Unrep, Kelly J, 17/6/2010), Re Marino Ltd [2010] IEHC 394 (Unrep, Clarke J, 29/7/2010) and Re Sharmane Ltd [2009] IEHC 377 [2009] 4 I.R. 285 approved - Insurance (No 2) Act 1983 (No 29), s 3(4)(b) - Costs and expenses fixed - (2009/807 & 808COS - Kelly J - 02/11/2010) [2010] IEHC 365

Re ESG Reinsurance Ireland Ltd (under administration)

Facts: Pursuant to s. 3(4)(b) Insurance (No. 2) Act 1983, the Court was obliged to fix the costs, expenses and remuneration of an Administrator of an insurance company whom it had appointed to that role. The legislature had given no guidance as to how to apply the criteria. The Administrator sought remuneration for the first company ESG for the sum of €386,646.25 and liberty to pay his solicitors the sum of €35,394.15 and for the second company Accent €222,680 and €25,607.70 to pay his solicitors. The administrator sought to distinguish the function of Administrator from a received, liquidator or examiner. The businesses of the companies had a combined balance sheet of $85 million. €450 per hour was sought as a standard partner call-out rate.

Held by Kelly J. that the Court would allow a hourly charge out rate of €375 for a partner. The Court held that in the case of ESG the fees would be reduced from €386,646.25 to €302,238.95. The Administrator's fees in the case of Accent would be reduced from €222,680 to €186,786.20. €594.85 would be added in expenses. The grand total for the Administrator's fees, expenses and charges was €496,619.99. The legal costs for the ESB were reduced to €27,961.38 and in the case of Accent they were reduced to €20,230.09. Credit would be given for payments on account. As to the future, the Court was only prepared to sanction further payments without reference to the court at the levels which the Court had fixed until 30 September 2011.

Reporter: E.F.

1 JUDGMENT of Mr. Justice Kelly delivered on the 2nd day of November, 2010

Introduction

2 Under the provisions of s. 3(4)(b) of the Insurance (No. 2) Act 1983, this Court is obliged to fix the costs, expenses and remuneration of an administrator of an insurance company whom it has appointed to that role. In common with a number of similar statutory provisions (e.g. Section 29 of the Companies (Amendment) Act 1990 dealing with the remuneration of an Examiner) the legislature has given no guidance as to the criteria to be applied by the court in exercising this jurisdiction.

3 The fixing of remuneration for court appointed liquidators and examiners has attracted a number of written judgments in recent times. This is the first such judgment dealing with an administrator's remuneration.

Background

4 On 18 ^th December, 2009, Mr. Jim Luby was appointed as administrator to each of the companies (the companies). The appointments were made on an interim basis. On 12 ^th January, 2010, an order for the administration of each of the companies was made and he was appointed administrator.

5 Mr. Luby has carried out his duties as administrator in respect of both companies and has put before the court detailed information as to the work undertaken by him in respect of those companies.

6 In the case of the first company (ESG) he seeks remuneration in respect of the period from 18 ^th December, 2009 until 6 ^th July, 2010 in the sum of €368,646.25 together with Value Added Tax thereon. He also seeks liberty to pay to his solicitors the sum of €35,394.15 plus Value Added Tax in respect of costs for the same period.

7 In the case of the second company (Accent), Mr. Luby seeks €222,680 plus Value Added Tax for remuneration in respect of the same period. He also seeks approval for the payment of €25,607.70 together with Value Added Tax in respect of solicitor's costs for the same period.

8 Certain ancillary orders are also sought pertaining to future payments which I will deal with later in this judgment.

Administrator's Functions

9 In his supplemental affidavits, filed pursuant to court direction, Mr. Luby highlights a number of features of an administrator which he says distinguish him from the position of a liquidator, examiner or receiver. He points out that he carries responsibility for running the business of the companies rather than having them wound up. That requires continuous assessment of the projected runoff outcome. He also points out that ESG is the first reinsurance company ever to be placed under administration in this jurisdiction. He avers that he has no entitlement to apply to the insurance compensation fund insofar as ESG is concerned to assist him in placing it back on a sound, commercial and financial footing.

10 The businesses of the companies have combined balance sheet liabilities of in excess of US$85m and have business relationships in over twenty jurisdictions. Staff are located in Dublin and Lisbon. All management decisions in the runoff of the businesses of the companies are taken by him and he is responsible for ensuring that the companies continue to pay their debts as they fall due. Two members of the staff of his firm McStay Luby are present in the companies premises on an almost fulltime basis. Furthermore, he is responsible for ensuring that relationships are maintained with numerous cedants, creditors and brokers.

11 He also points out a number of international elements to his role as administrator. Some of the more significant issues involve assessing advice from Accent's lawyers in the Netherlands concerning an ongoing arbitration there. He also has had to assess the advice of lawyers in New York concerning the termination of a trust fund and in addition has had to engage with lawyers in the United Kingdom and Brazil to finalise an aspect of ESG's work. He is also the person responsible for compliance with the requirements of the Financial Regulator.

12 Whilst all of these features exist and do distinguish the work of an administrator from that of a liquidator, receiver or examiner, the particular skills which are brought to bear are essentially those of an insolvency expert. Thus, whilst I accept that there are aspects of the work which differ, the skills which are used by an administrator are derived from the same background and qualifications which are applicable to the all the other office holders which I have mentioned.

13 Mr. Luby points out that the work done by himself and his firm in the administrations has delivered significant value including a saving of €0.7m on rent and service charges and a further saving of at least $6m in the case of ESG on commutation with an entity called Unimed.

Charges for Work

14 Mr. Luby tells me that the partners in his firm review and fix their standard hourly rates on a regular basis.

15 The following is the standard hourly charge-out rate in respect of relevant personnel in Mr. Luby's firm from November 2006 to date.

Partner

November 2006	€355
November 2007	€370
May 2008	€425

Senior Manager

November 2006	€225
November 2007	€240
March 2008	€250

November 2008 €260

Assistant Manager

June 2008	€195
November 2008	€235

16 From the above it can be seen that there has been a consistent increase in fees over the last few years with the latest increase occurring in May 2008 in the case of a partner and November 2008 in the case of a senior manager and assistant manager.

17 In the present case approval is sought for a higher than standard hourly rate at partner level. In the case of a partner, €450 per hour is sought to be charged. (See exhibit 'JL1' in the affidavit of Mr. Luby sworn on 13 ^th July, 2010.) Senior managers and managers are sought to be paid at the standard rate.

18 Mr. Luby has told me on affidavit that the demand for experienced insolvency and corporate recovery experts has increased significantly in the current recession. He goes on to say that although charge out rates for what he describes as "standard" or "normal" voluntary and court liquidations are under pressure, larger scale more difficult and...