David Kirk, chartered accountant and licensed insolvency practitioner, comments on the new fee rules and the need for clear guidance.
Since 1986, licensed insolvency practitioners have been paid for their work in one of the following three ways:
- a fixed fee
- a percentage of assets realised
- the time taken at an hourly rate (the time cost basis)
The most widely used method is time cost basis. Most professionals, such as solicitors and accountants, are paid for their work in this way.
However, there are a number of instances of creditors being unhappy with the fees charged by insolvency practitioners (often equalling the assets left). The publication of the Professor Kempson Report in 2013 led to proposed changes that will take effect on 1 October 2015.
The key change
The major change that will come into effect from the new ruling is that the proposed fees charged (including expenses such as disbursements) must be quoted and agreed by creditors in advance. If the fee the insolvency practitioner wants to charge exceeds the initial quote, then a further meeting or postal vote of creditors must be held in order to authorise the additional costs.
Despite the proposed changes to insolvency fees being announced back in March 2015, with an implementation date of October, very little guidance has been issued by the regulatory bodies on how insolvency practitioners will need to deal with these changes.
R3, the insolvency professional body, has released a draft document for consultation (the Statement of Insolvency Practice 9), but it has not yet been published, and there has been some comment on a lack of clarity within this.
With the date looming for these new rules to come into effect, the regulatory bodies, such as the Institute of Chartered Accountants in England and Wales, are running out of time to issue proper guidance on this matter.
Will the rule changes make a difference?
I am not sure how much effect these changes are going to have, in reality. If an insolvency practitioner can’t reach an agreement over fees with creditors, they still have the same remedy of applying to the court to ask a judge for a decision.
In my experience, unless the hourly rate charged is outside of the normal range, or the hours of work are clearly unrealistically high, the court will, in most cases, side with the insolvency practitioner.
More guidance on this matter is definitely required, and it will be interesting to see whether this is forthcoming before October.
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