Re HEC Enterprises Ltd

Whether administrators are entitled to costs from trust assets under Re Berkeley Applegate principles.

Administration – administrators – trust assets – indemnity for costs and remuneration – Re Berkeley Applegate

The administrators of two companies applied for an order indemnifying them for their remuneration, costs and expenses of just over £420,000 in relation to the administration and management of trust assets held by the companies, relying on Re Berkeley Applegate [1989] Ch 32.  The trust assets were various copyrights, royalties, and shares in a third company which the two insolvent companies held for the benefit of members of the rock band Deep Purple, who as claimants had brought proceedings against the two companies before they went into administration.

The administrators claimed costs and remuneration for considerable work in relation to: royalty entitlements; the recovery of misappropriated money; obtaining advice on which assets belonged to the companies and which were subject to the trusts; corresponding with the claimants and seeking to settle their claims; making distributions of the income; and dealing with the litigation.

The court held that whilst some work in relation to royalty entitlement and income distributions might fall within the Berkeley Applegate principle, the application was largely unsuccessful.

The case did not involve substantial funds held on trust for a large number of beneficiaries where the obvious course was for the administrators to administer the trusts. The administrators should have left it to the claimants to litigate their dispute and given consent for them to continue the claims; and they should not have tried to act as mediators or brokers. They had not sought directions from the court.

The administrators could not recover remuneration and expenses in relation to work which was for the benefit of unsecured creditors and adverse to the interests of the trust beneficiaries, such as the negotiations over the entitlement to the misappropriated money, and the costs of ascertaining whether certain assets were trust assets. The costs of dealing with the litigation should be dealt with under the court’s jurisdiction as to costs and not under Berkeley Applegate principles.

The Berkeley Applegate jurisdiction is discretionary which is exercised sparingly; and not, it seems, where there are few beneficiaries.  This case illustrates the problem that office holders may not recover their costs and expenses of dealing with assets that are held by the company on trust for third parties, particularly if the office holders have dealt with them for the benefit of the company’s unsecured creditors rather than the trust beneficiaries.