The cost of reforming insolvency practitioners’ fees

The cost of reforming insolvency practitioners’ fees

What’s the future for the insolvency practitioners’ fees regime? Ian Defty, a director in the niche London insolvency firm of DDJ Insolvency Limited, comments on the proposed new regulations of IP fees.

Original news

Insolvency practitioners will be required to provide extra information to creditors about their fees from October 2015. They will need to give a summary of estimated costs and work to be undertaken, following concerns the current system permits excessive hourly fees to be charged.

For further information, see blog post: The need to be up-front with creditors on fees.

What are the key changes/most important points of the new regulations?

At present, insolvency practitioners are able to charge their fees in a variety of ways in an insolvency estate:

  • on a time actually spent basis (ie, if a matter takes ten hours then the insolvency practitioner gets paid their rate for those 10 hours)
  • on a percentage charged on the value of the realisations recovered in an estate, or
  • on what is called the Officials Receiver’s scale rate (which is a percentage based upon prevailing statute)

The new legislation is saying that where insolvency practitioners take the most common route (that is on a time cost) they must provide an estimate of their fees for creditor approval in advance.

What prompted these changes?

The insolvency industry is one of the most heavily regulated industries. Notwithstanding that the government brought in the ‘Complaints Gateway’ and notwithstanding there are already court remedies in statute to deal with insolvency practitioners’ fees, there is a

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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.