Re Mohammed Safier

Circumstances in which fees are payable for use of the Insolvency Service Account

Bankruptcy – annulment – ss. 305(2) and 415 Insolvency Act 1986 – Insolvency Regulations 1994 (SI 1994/2507) – Insolvency Proceedings (Fees) Order 2004 (SI 2004/593) – fees – Insolvency Service Account

The bankrupt, Mr Safier, applied to annul his bankruptcy under section 282(1)(b) of the Insolvency Act 1986. The debts and expenses of the bankruptcy were paid in full by a third party, although the assets in the bankruptcy estate could have been used to satisfy those debts. In the course of the administration, the trustee paid those third party funds into the Insolvency Service Account, as his firm had no client account.

The trustee contended that no fee was due to the Secretary of State under section 415 of the Insolvency Act 1986 and paragraph 4 of the Insolvency Proceedings (Fees) Order 2004 (SI 2004/593) in respect of functions carried out by the Official Receiver and the Secretary of State; the fee often known as the “B2 fee”. The Official Receiver disagreed. There was no authority on the point. It was a point of general importance. The matter was transferred to the High Court.

The Judge held no fee was payable. The particular fee only arose if a trustee “in the course of carrying out his functions” paid money into the Insolvency Service Account: paragraph 20(1) of the Insolvency Regulations 1994 (SI 1994/2507).

Money paid by a third party to the trustee did not form part of the bankruptcy estate and therefore the payment of those funds into the Account was not “in the course of carrying out his functions”. “Functions” in this context meant those functions set out in section 305(2) of the Insolvency Act 1986.There was no other basis upon which a fee became payable merely because money had been paid into the Insolvency Service Account.

Although a narrow decision, it is likely to have some practical importance in clarifying for insolvency practitioners the circumstances in which fees are due to the Secretary of State. Although the fee in this case was small, in larger insolvencies the issue may be of considerable commercial value.