From October 2015, insolvency practitioners (IPs) in England and Wales will be required to provide upfront estimates of the cost of working on insolvency cases. The intention is to end the uncertainty of unlimited hourly charges for creditors.
Under current rules, IP fees are usually charged at an hourly rate, without a full and clear explanation of the work that is to be done, or how long it will take. New rules laid in parliament in March require provision of:
- a summary of estimated costs
- details of the work that is to be carried out
- the expected time it will take, where an hourly rate is proposed
These estimates will act as a cap on fees, as once agreed, they can only be changed by agreement between the insolvency practitioner and creditors.
The review was prompted by concerns that the current system allowed excessive fees to be charged. Business Minister, Jo Swinson, said: “Increased transparency is a sensible and practical way to strengthen the hands of those owed money in an insolvency and will give insolvency practitioners the opportunity to demonstrate how their services provide value for money.”
This increased transparency is supported by both representative groups of creditors and IPs.
Giles Frampton, president of insolvency trade body R3, said: “An upfront estimate should work for both creditors and the insolvency profession, and will help improve trust and transparency in our insolvency regime.”
Philip King, chief executive of the Chartered Institute of Credit Management (CICM), said: “The CICM has been vocal in wanting to see up-front estimates for work undertaken, so that the element of surprise is removed further down the road in the insolvency procedure."