New consultation—strengthening the regulatory regime and fee structure for insolvency practitioners

New consultation—strengthening the regulatory regime and fee structure for insolvency practitioners
New consultation from the Insolvency Service is looking at how to strengthen the regulatory regime and fee structure for insolvency practitioners. What are the implications for the industry?

What has happened?

Insolvency Minister, Jenny Willott, has today launched a consultation on strengthening the regulatory framework and fee structure for Insolvency Practitioners (IPs). This consultation follows two independent reports commissioned by the government that identified both a failing in the regulatory system (2010 OFT market study into corporate insolvency) and a market failure when unsecured creditors are in control of an IP’s remuneration (Professor Elaine Kempson’s review of IP fees, published in July 2013).

The consultation paper sets out proposals to:

  1. strengthen the regulatory framework through the introduction of clear regulatory objectives
  2. give the oversight regulator more appropriate powers to deal with poor performance, misconduct and abuse
  3. take a backstop power to introduce a single regulator for the insolvency profession
  4. change the way that IP fees are set to ensure better returns for unsecured creditors

Strengthening the regulatory regime

The current authorisation and regulation of the insolvency profession is mainly self-regulating by eight different professional bodies overseen by the Insolvency Service. The two independent reports found that:

  1. the Insolvency Service lacks proportionate powers with which to monitor the professional bodies and address poor performance by the bodies, and
  2. the regulatory system suffers from a lack of clear regulatory objectives against which the Insolvency Service can hold the regulators to account

Regulatory objectives

The consultation considers 'the introduction of regulatory objectives will provide regulators with a clear enhanced framework within which to carry out their activities'. Regulatory objectives will enable consistency of approach and provide a reference point for discussion between IPs and their professional bodies, and between the professional bodies and the Insolvency Service as their regulator. The proposed regulatory objectives include:

  1. protecting and promoting the public interest
  2. promoting the maximisation of the value of returns to creditors and also promptness in making returns
  3. ensuring the fees charged by IPs represent value for money

Oversight powers for the Insolvency Service

Currently the only sanction available to the oversight regulator is to de-recognise a regulator, meaning that it could no longer authorise IPs. Such a step would only be taken in extreme cases and has never been taken to date. The lack of appropriate and proportionate powers of sanction is felt to leave the oversight regulator in a weak position and undermine the credibility of the regulatory regime. It is proposed to introduce a range of sanctions that can be imposed against the professional bodies, including imposing financial penalties on the professional body and asking the court to sanction an IP directly.

IP remuneration

The two independent reports identified failings in cases where there is no secured creditor 'controlling' an IP's fees and that there was little effective oversight by unsecured creditors. The consultation notes that the most common way for IPs to set their remuneration is on a per hour basis, and disquiet often focuses on the headline hourly rates firms charge and the lack of control over the number of hours charged. The Insolvency Service consider more needs to be done to ensure that creditors and others can have confidence that the fees charged by IPs properly reflect the value of the work they carry out. The consultation sets out a number of proposals to simpify the IP fee charging structure, including restricting the use of time and rate as a basis for remuneration to cases where there is tight control over the work being done (generally, either by a creditors’ committee or secured creditors). The consultation also considers ways to increase creditor engagement and also the role regulators have to play in ensuring fees taken in an insolvency case represent value for money.

This is likely to be the most controversial part of the consultation and the industry’s bodies are calling on members to respond to the consultation. R3 (the Association Business Recovery Professionals) has stated that it considers the government proposals to raise 'serious concerns' (the press release can be found here) and Frances Coulson of Moon Beever has stated that she hopes that the 'politics of envy' will not damage the good work IPs do to the benefit of creditors (Frances' response can be found here).

Helpful links

A copy of the consultation can be found here. The consultation will run for six weeks and close on Friday 28 March 2014. Responses can be sent by email to or in respect of the changes to the fee structure, submitted online at here.

For copies of the two independent reports on which the consultation is based, please see OFT 2010 report into the market for corporate insolvency practitioners and Professor Elaine Kempson's 2013 report reviewing insolvency practitioner fees.

For more information on insolvency practitioners' fees generally see Lexis PSL R&I notes : Remuneration and fees - overview

Anna Jeffrey, solicitor in the Lexis®PSL Restructuring & Insolvency team.

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