What are the Fees and Costs of an Insolvency Practitioner?
There are no fixed costs in insolvency. The fees charged by an insolvency practitioner are influenced by factors such as the firm’s fee structure, the complexity of the case, and the value of the company’s assets.
This guide delves into the intricacies of insolvency fees, providing you with a clear understanding of the financial implications of engaging an insolvency practitioner in a typical insolvency scenario.
- How Much Does an Insolvency Practitioner Cost?
- What are an Insolvency Practitioner’s Fees in the UK?
- How are fees decided after an Insolvency Practitioner is appointed?
- Insolvency Practitioners Must be Transparent over Cost
- What are the Standard Charges in Insolvency Proceedings?
- Who Pays the Insolvency Practitioners’ Fees?
- How do Insolvency Practitioners report their fees?
How Much Does an Insolvency Practitioner Cost?
Before hiring an IP, it is important to obtain a fee proposal in writing. This should clearly outline the IP’s hourly rate, as well as any additional costs that you may be responsible for. This transparency will help you make an informed decision and avoid any surprises down the road.
Here are some key points to look for in a fee proposal:
- Hourly rate: The IP’s hourly rate is the most important factor in determining the overall cost of your case. Make sure you understand the IP’s hourly rate and any factors that could affect it, such as experience, complexity of the case, and location.
- Disbursements: Disbursements are any out-of-pocket expenses that the IP incurs on your behalf, such as court fees, expert witness fees, and travel expenses. Make sure you understand what disbursements are included in the fee proposal and whether you will be responsible for paying them upfront.
- Payment terms: The fee proposal should outline the IP’s payment terms, such as whether they require a deposit upfront, how often they will bill you, and what payment methods they accept.
- Scope of work: The fee proposal should clearly define the scope of work that the IP will perform. This will help you avoid any misunderstandings about what is included in the fee and what you may be charged for additionally.
- Contingency fees: If the IP is proposing a contingency fee arrangement, make sure you understand the terms of the agreement. This type of arrangement typically means that you will only pay the IP a fee if they are successful in recovering money for you. However, it is important to understand the specific terms of the agreement, such as what percentage of the recovered funds the IP will receive.
- Termination clause: The fee proposal should include a termination clause that outlines how you can terminate the agreement with the IP. This is important in case you are unhappy with the IP’s services or if your financial situation changes.
What are an Insolvency Practitioner’s Fees in the UK?
The average hourly rate for an IP in the UK ranges from £200 to £400. However, this is just a general guideline, and the actual cost can vary considerably depending on the complexity of the case, the experience of the IP, and the location of the business.
Several factors can influence the fees charged by an IP. These include:
- The size and complexity of the insolvency case
- The experience of the IP
- The location of the business
How are fees decided after an Insolvency Practitioner is appointed?
The fees of an Insolvency Practitioner (IP) are typically agreed upon between the IP and the creditors of the insolvent company. The IP will usually provide the creditors with a fee estimate before they are appointed, and the creditors will then vote on whether to approve the fee estimate. If the creditors do not approve the fee estimate, the IP may have to apply to the court for an order approving the fees.
Insolvency Practitioners Must be Transparent over Cost
SIP 9 is the relevant documentation issued by the Joint Insolvency Committee (JIC) relating to practitioner’s fees. Each of the regulatory bodies has approved and adopted these statements and the Statement of Insolvency Practice 9 deals specifically with fees, costs and remuneration.
Part of the requirements laid out in SIP 9 is that licensed IP’s must provide fee information subject to creditor approval. This is one of the many reasons you should only ever work with licensed practitioners.
What are the Standard Charges in Insolvency Proceedings?
The standard charges common across the most frequent procedures are as follows:
Statement of Affairs Fee
Before initiating any liquidation proceedings, a detailed statement of affairs must be prepared, outlining the company’s financial position. Insolvency practitioners typically charge a fee for producing this document and convening the creditors’ meeting. The statement of affairs fee is either borne by the company’s directors, the company itself, or is considered an expense of the winding-up process.
General Liquidation Costs
In most liquidation cases, insolvency practitioners charge for various services, including:
- Time Spent Realizing Company Assets and Distributing Proceeds: Insolvency practitioners typically charge an hourly rate or a percentage of the realized assets for the time spent identifying, liquidating, and distributing the company’s assets to creditors.
- Compliance Work: Ensuring compliance with various legal and regulatory requirements throughout the liquidation process incurs additional fees.
- Investigation into Directorial Conduct: Insolvency practitioners are legally mandated to investigate the conduct of company directors, which is reflected in their fees.
- Court Fees and Disbursements: Court fees and associated expenses related to legal proceedings are also included in the insolvency practitioner’s charges.
Company Voluntary Arrangement (CVA) Costs
Company voluntary arrangements (CVAs), structured payment plans approved by creditors, typically involve the following insolvency practitioner fees:
- Nominee Fee: A nominee fee is deducted from monthly payments made into the CVA arrangement once it is in effect.
- Supervisor’s Fee: An ongoing supervisor’s fee is charged for monitoring and overseeing the implementation of the CVA.
Who Pays the Insolvency Practitioners’ Fees?
Insolvency practitioner (IP) fees are typically paid from the realization of company assets, with the remainder distributed to creditors. This means that it is the company’s creditors who ultimately pay the IP’s fees, rather than the business owners.
However, there are some exceptions to this rule. For example, if the directors of a company are found to have been negligent or fraudulent, they may be personally liable for the IP’s fees. Additionally, if there are insufficient company assets to cover the IP’s fees, the IP may be able to claim their fees from the government.
How do Insolvency Practitioners report their fees?
Insolvency practitioners (IPs) are required to report their fees to creditors in a number of ways. The specific requirements will vary depending on the type of insolvency procedure being undertaken.
- Liquidation In liquidation, IPs are required to provide creditors with an annual report and a final report. The annual report must include a summary of the IP’s activities, including their fees. The final report must include a detailed breakdown of the IP’s fees.
- Administration – In administration, IPs are required to provide creditors with a statement of proposals. The statement of proposals must include an estimate of the IP’s fees. IPs are also required to provide creditors with interim reports and a final report. The interim reports must include an update on the IP’s activities, including their fees. The final report must include a detailed breakdown of the IP’s fees.
- Company Voluntary Arrangement (CVA) – In a CVA, IPs are required to provide creditors with a CVA supervisor’s report. The CVA supervisor’s report must include a summary of the IP’s activities, including their fees.
In addition to the specific reporting requirements for each type of insolvency procedure, IPs are also subject to general reporting requirements. These requirements are set out in the Insolvency Code 1996 and the Insolvency Rules 1986.
The general reporting requirements include the following:
- IPs must provide creditors with regular updates on their activities.
- IPs must keep accurate records of their time and expenses.
- IPs must provide creditors with a detailed breakdown of their fees.
Failure to report fees
IPs who fail to report their fees in accordance with the requirements may be subject to disciplinary action. This action may include a fine or suspension from practice.