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The Investment Bank Special Administration (Scotland) Rules 2011

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PART 4Expenses of the Special Administration

Order of priority of expenses of the special administration

110.—(1) Subject to rule 111, the expenses of the special administration are payable out of the assets of the investment bank in the following order of priority—

(a)any outlays properly chargeable or incurred by a person appointed under section 135 or the administrator in carrying out the administrator’s functions in the special administration, except those outlays specifically mentioned in the following sub-paragraphs;

(b)the cost, or proportionate cost, of any caution provided by the administrator or by a person appointed under section 135 in accordance with the Regulations or these Rules;

(c)in a special administration (bank insolvency) or special administration (bank administration) the remuneration of the person appointed under section 135 (if any);

(d)the expenses of the applicant for a special administration order, and of any other party whose expenses are allowed by the court;

(e)any allowance made by the administrator under rule 38 (expenses of statement of affairs);

(f)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 by or under the Regulations or these Rules;

(g)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 rule 16, 29, or 135, and

(iv)unpaid pre-administration costs for work done in pursuit of these Objectives approved under rule 112; and

(h)the amount of any corporation tax on chargeable gains accruing on the realisation of any asset of the investment bank (without regard to whether the realisation is effected by the administrator, a secured creditor or otherwise).

(2) 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 after the expenses set out in paragraph (1).

(3) Nothing in this rule applies to or affects the power of any court, in proceedings by or against the investment bank, to order expenses to be paid by the investment bank or the administrator nor does it affect the rights of any person to whom such expenses are ordered to be paid.

(4) The priorities laid down by virtue of paragraph (1) are subject to the power of the court to make orders under paragraph (5) where the assets are insufficient to satisfy the liabilities.

(5) 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 special administration in such order of priority as the court thinks just.

(6) For the purposes of paragraph 99(3), the former administrator’s remuneration and expenses shall comprise all those items set out in paragraph (1).

(7) In this rule, a reference to “section 135” is to section 135 of the 1986 Act (appointment and powers of provisional liquidator) as modified by—

(a)in a special administration (bank insolvency), Schedule 1; or

(b)in a special administration (bank administration), Schedule 2,

to the Regulations.

Expenses to be paid out of the client assets

111.—(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 112, 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 96 but not including any payment of corporation tax in circumstances referred to in rule 110(1)(h));

(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 these Rules; and

(d)the administrator’s remuneration, the basis of which has been fixed under rule 135 and unpaid pre-administration costs approved under rule 112 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

112.—(1) Where the administrator has made a statement of pre-administration costs under rule 39(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 Objectives 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 (4), (5) and (8) of rule 136 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

113.—(1) The administrator shall set out, in the distribution plan under rule 120, 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 122, 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 the assets are securities, the claim is to be valued in accordance with rule 69 and for this purpose the references to “chair” in rule 69 shall be read as references to the administrator.

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