Changes to Fee Disclosure by Insolvency Practitioners
With effect from 1 October 2015, insolvency practitioners’ will be required to provide additional advance information to creditors prior to having the basis of their remuneration approved.
The Insolvency (Amendment) Rules 2015 (SI 2015/443) were laid before Parliament on 3 March 2015, and the requirement to provide the additional fee information will come into force on 1 October 2015. The change applies to administrations, bankruptcies, compulsory liquidations and creditor’s voluntary liquidations.
The change stems from public concern about how the current system could be exploited by some insolvency practitioners who may charge excessive hourly fees under the current system where unlimited fees could be charged. The changes require a summary of estimated costs, the work to be undertaken and an estimate of the time expected to be spent on a case, where fees are to be drawn on a time costs basis. The estimate acts as a ‘cap’ which cannot be exceeded without approval.
If fees are to exceed the estimated ‘cap’ in the course of the case, then an insolvency practitioner must obtain approval from the body who fixed the original basis of remuneration. The insolvency practitioner will have to advise why the fee is to exceed the estimate, what additional work they have undertaken/propose to take, as well as stating the hourly rates that the insolvency practitioner proposes to charge and the time taken to complete the additional work.
It is proposed that these changes will enable insolvency practitioners to demonstrate how the services they provide give value for money, and the increased transparency is a way of creditors being more involved in determining fees to be taken and being clearer as to what’s happening and what the return to them might be.
Further disclosure will also need to be made regarding what expenses are likely to be incurred, and in progress reports, disclosure again regarding estimated level of fees is to be provided and the reasons for any excess.
The changes increase the administrative burden on insolvency practitioners, whose actions are already heavily regulated and fees open to challenge. However, if the purpose of these changes is achieved and the general public has increased confidence in the insolvency profession, then in the long run the changes should ensure that creditors feel more in control of the process, and satisfied that they are in receipt of sufficient information to understand the procedure which in turn should therefore reduce complaints which are raised on this basis.
Keely Edwards MIPA, Senior Administrator