Increase in transparency of fees charged in insolvency

27 May 2015

On 3rd of March new rules were laid in Parliament that aim to increase the transparency of fees charged by insolvency practitioners. 

In insolvency an hourly rate is generally charged for all work undertaken. The average charge out rate, according to government figures, for the profession is GBP 375.  Under the new rules, where an hourly rate is to be used as opposed to a fixed fee, insolvency practitioners will have to provide a budget for all of the work they are due to undertake. Details will need to be provided of the hourly rate an estimate of the expected time.  This will then act as a cap on the fees much in the same way as a budget filed in litigation matters. These fees can be altered even after they have been agreed, However, this can only be done so between the IP and creditors. 

Solvent Thoughts 

Potentially this should be an excellent move. Insolvency Practitioners have an important job and are bestowed with a significant level of trust. This allows clients and IP’s to have honest, expectation setting conversations at the outset. Hopefully this will also enable the consumer to greater understand the significant levels of work undertaken and the required level of skill to perform the role of an IP effectively. This in turn should assist the wider public to greater appreciate the role of an Insolvency Practitioner.

The statement in full

House of Commons: Written Statement (HCWS325) Department for Business, Innovation and Skills Written Statement made by: Parliamentary Under Secretary of State for Employment Relations and Consumer Affairs (Jo Swinson) on 3rd March 2015. Measures to improve transparency in insolvency practitioner fees and handling of cases in the courts I am today laying regulations requiring insolvency practitioners to provide additional information to creditors about their fees and expenses. Insolvency practitioners are given strong powers by legislation to administer insolvencies. They take decisions and actions that can have a significant financial impact on those affected. Their fees are paid out of the assets in cases. It is important that there is confidence in the way that they charge fees.

After commissioning an independent review by Professor Elaine Kempson, we consulted with interested parties on what measures should be put in place to address shortcomings in the current fee regime. Where insolvency practitioners’ fees are based upon time costs, they will be required to provide an upfront estimate of their fees for creditor approval, before they can take their fees. Insolvency practitioners will not be permitted to draw fees in excess of the approved estimate unless creditors give further approval. This will therefore act as a cap on fees.

Download full Solvent Thinking newsletter 

For further information, please contact Ed Brittain, Head of Restructuring and Recovery Risk Practice on +44 (0)12 1626 7821.