Much
to everyone’s surprise the Insolvency Service (IS) launched their new fees
regime on an unsuspecting public and profession on 30 June, giving 21 days’
notification of the changes. Apparently
they couldn’t get Ministerial sign-off to make disclosure any earlier, although
the Impact Assessment for the new regime was dated 18 March, nearly 4 months ago. The lack of consultation has certainly caught
everyone on the hop, including R3 who despite having a regular dialogue with
the Insolvency Service were not aware of the launch. R3 is already lobbying on behalf of the
profession and hopefully making the Parliamentary scrutiny of the new fees
regime as stringent as possible. The
recent R3 press release about the changes said that the new fees, “will hurt
creditors of insolvent companies and individuals and undermine the UK
insolvency regime”. Now, many readers
will be familiar with our occasional rants when someone in the profession falls
below the standard we expect, but when the trade body talks about the
Insolvency Service damaging the regime it is supposed to promote and police, then
you have to know that we are not the only ones with concerns.
The
detail of the new regime is well known, and can be found by clicking here, although there
are still some unanswered questions. The
main one centres around annulments, whether as a result of payment in full or
following approval of an IVA. Is the
OR’s General Fee of £6,000 going to be rebated on annulment? Or will it be payable in full? The General Fee is the big change from the
previous fees regime and the problem is that it is payable in full on
commencement of the case rather than as a sliding scale depending upon the
level of realisations made. So it falls
due even if the annulment is made using 3rd party funds that are not
paid into the ISA, or if the annulment is as a result of the approval of an IVA. In IVAs the General Fee is the equivalent of
an extra £100 per month over the life of a standard 5 year arrangement, which
is a significant amount on an average IVA.
Hopefully common sense will prevail and the fee will not be chargeable
in such cases, but we are not holding our breath!
The
Impact Assessment makes for interesting reading, and it can be accessed by
clicking here. It emphasises the significant fall in
caseloads for the ORs which is leading to a forecast operation deficit of £9m
in 2016/17 and the need to ensure that fees cover costs so that there is not a
drain on the public purse. It indicates
that cross subsidisation of cases is inevitable since not all cases have assets
to realise against which the fees can be charged, and that is also something
that happens under the existing fees structure.
Whilst the Impact Assessment keeps emphasising that under the existing
fees structure it is the asset rich cases that bear a disproportionate amount
the costs of the administration of cases, it does not actually provide any
definition as to what it means by such cases, nor the numbers of such cases
each year, and perhaps most tellingly, does not provide a comparative example
of how the new fee structure will impact on those cases.
The
four worked examples of cases with net realisable assets of £15,000, i.e. after
taking into account petition costs and the deposit on the petition, included in
the Impact Assessment are very interesting.
First, the IP’s fees for acting as Trustee or Liquidator are cheaper than
the statutory fees of the OR for administering the case. Secondly, and more importantly, they show
that the funds available to the unsecured creditors are significantly lower
under the new fee structure compared with the old one, ranging from £2,180 (15%
of net realisable assets) in a compulsory liquidation with an IP acting as
liquidator, to £4,225 (28% of net realisable assets) in a bankruptcy where the
OR acts as trustee. Whilst we do not
have any information about the average level of assets in cases, we assume that
there is some significance in the IS choosing £15,000 as the level of net realisable
assets in their examples, and it is telling that they show such a worsening of
the position for the creditors of such cases under the new fee structure. The fee burden under the new fee structure will
certainly be shared amongst more cases, and as a result the creditors in cases
with fewer assets will certainly suffer disproportionately.
The
other interesting point to note is that the OR’s realisation fee is a rate of
15% of realisation, irrespective of the amount realised. That is certainly higher than the average
rate we are seeing IPs apply, and we regularly see IPs reduce the rate or omit
charging completely for “easy” assets like cash at bank. In addition, because they have to comply with
SIP 9, whilst the OR does not, IPs need to justify that the % they charge produces
a fair and reasonable reflection of the work that they anticipate will be
undertaken.
