Insolvency Practitioners' Fees

Insolvency practitioners (IPs) act as office-holders in insolvency procedures and are given extensive powers by legislation. They take decisions that can have a significant impact on the funds available to creditors; their fees are paid out of the assets in cases. New rules requiring Insolvency Practitioners (IPs) to provide upfront estimates of what they will charge for their work came into force on 1 October 2015.

Specifically, the Insolvency (amendment) Rules 2015 ("the Rules") require IPs to provide upfront a summary of estimated costs, the work to be undertaken and, where an hourly rate is proposed, an estimate of the time they expect to be working on that case. These estimates will act as a cap on fees as, once agreed, they can only be changed by agreement between the IPs and the creditors (i.e. those that are owed money by the insolvent individual or company). The new rules apply to the following insolvency procedures:

• administration;
• creditors’ voluntary liquidation;
• compulsory liquidation (unless the Official Receiver acts as liquidator); and
• bankruptcy (unless the Official Receiver acts as trustee in bankruptcy)

It is hoped that the new rules will increase transparency for creditors. Since they will have a much clearer indication of what the likely fees and costs of dealing with an insolvency will be, creditors should be better equipped to challenge fees when they appear unreasonable. In addition, IPs have an opportunity to demonstrate to creditors what they do and the value they deliver in return for their fees.

The new rules follow the Office of Fair Trading’s 2010 market study into corporate insolvency and Professor Elaine Kempson’s 2013 review of insolvency practitioner fees. The Kempson Report identified that, where fees were controlled by unsecured creditors collectively, control mechanisms did not work as intended. In 2014, the Government published a consultation document on proposals aimed at tackling these issues.

This briefing paper provides information on the background to, and the main provisions of, the Insolvency (amendment) Rules 2015. The new Rules apply to England and Wales only; in Scotland, the court reporter system acts as a check on IPs’ remuneration.