Insolvency Practitioner Fees: Everything You Need To KnowDecember 12, 2019
When it comes to insolvency practitioner fees, there’s no one-size-fits-all approach.
Fees for a licensed insolvency practitioner (IP) usually fall into one of two categories: pre-appointment fees or post-appointment fees.
An IP must be transparent when disclosing the details of fees for work undertaken. For further information, please review the relevant Statement of Insolvency Practice.
We’ll outline how fees are dealt with in various insolvency processes below, but first let’s look at the two main categories that insolvency practitioner fees fall into:
What Is A Pre-Appointment Fee?
Typically, this is a fixed fee paid by the company director for assistance with putting a company into an insolvency process. The fee usually covers – but is not limited to – the following services:
- Collecting relevant information
- Providing high level advice on which mechanism to use, e.g. liquidation, administration etc.
- Assisting the directors with potential redundancies and threats from creditors
- Assisting the directors with the necessary paperwork necessary
- Convening meetings etc.
What Is A Post-Appointment Fee?
This type of insolvency practitioner fee relates to costs incurred by the IP, once they have taken over the estate, in doing their regulated work. These costs are usually dealt with in one of four ways, as outlined in the Statement of Insolvency Practice. These are time costs, fixed fee, percentage of realisations or any combination of the three methods. Whichever basis is approved, the regulations require IPs to justify in detail why they are charging this amount.
In most circumstances (there are some exceptions, but that’s a blog for another day!) the post-appointment fee is drawn from monies recovered during the process.
The distinguishing difference between pre-appointment and post-appointment fees is the requirement for approval from creditors. Post-appointment fees require approval from the general body of creditors (except in circumstances where the fees are being settled by a third party), whereas pre-appointment fees only require approval where the fee is settled using company funds.
So, now let’s move on to how fees for insolvency practitioners are broadly dealt with in different circumstances.
Creditors’ Voluntary Liquidation
Pre-Appointment Insolvency practitioner Fees
As mentioned above, this is usually paid by the director of the company or the company itself. In some circumstances it’s paid by a third party seeking to buy the business and/or company assets.
In voluntary liquidations, the pre-appointment fee usually covers assistance given to the directors with placing the company into liquidation. This includes but is not limited to:
- Helping the directors prepare a report detailing the company’s trading history and reasons for insolvency
- Helping the directors put together a statement of affairs that provides a snapshot of the company’s current financial position
- Assisting the directors by compiling all the legal documents needed to put the company into liquidation.
Post-Appointment Insolvency Practitioner Fees
It takes a great deal of work to administer a liquidation. A liquidator is obliged to adhere not just to relevant legislation but also to the regulations and guidelines issued by the Secretary of State and the liquidator’s licensing body.
A liquidator is obliged to do various tasks, including (but not limited to) investigating the events that led to the company’s insolvency, investigating the directors’ conduct, liaising with creditors and employees and selling the company’s assets.
In accordance with the guidelines, all IPs are strictly obliged to record all time spent on each case with a detailed narrative using a time recording system. Time is usually recorded in six-minute units.
An IP must prepare a fee estimate for the consideration of creditors. Any fee that is agreed will vary from case to case and can be difficult to initially forecast. Despite insolvency practitioner fees being estimated using a time cost basis, fees may be charged on different bases as mentioned above.
In some cases, the IP may wish to change the original estimated fee in complex cases, and they must seek approval from the company’s creditors to do so.
If the requested fees are not approved by creditors, the liquidator’s only recourse is to go to court to get the required fee approval.
Members’ Voluntary Liquidation
In an MVL, there is typically a fixed fee which covers the requirement to liquidate and dissolve a company.
Generally, this is agreed with the directors prior to appointment, and covers all the work undertaken by the firm pre-appointment and post-appointment. Although this is generally the case, the basis can also be agreed as detailed above.
Insolvency practitioner fees differ in an administration from those in voluntary liquidations, in that pre-appointment fees usually require approval from creditors as they’re usually settled from post-appointment realisations.
Fees need to be approved by a majority of creditors in order to be drawn. A fee estimate is provided to creditors in the proposals put forward after appointment. Any subsequent fee requests can be put forward to creditors for consideration in an additional fee estimate report.
The pre-appointment fee in a voluntary arrangement is usually referred to as the nominee fee, whilst the post-appointment fee is referred to as the supervisor’s fee.
The IP occupies three roles in a voluntary arrangement: advisor, nominee and supervisor.
The nominee fee contains an element of fees due in relation to advice provided, but mostly covers assistance provided in putting together a set of proposals for creditors and the preparation of the nominee’s report.
The supervisor’s fee is agreed by creditors for the supervision of the implementation of a voluntary arrangement. This happens once proposals have been agreed by creditors. Usually this amount is a percentage of contributions or realisations made during the course of the arrangement.
These are the fees paid by creditors, individuals, or company directors for insolvency advice provided by an IP.
Insolvency Practitioner Fees: To Conclude
As detailed above, insolvency practitioners must be transparent, fair and reasonable when disclosing the details of fees for their work. This means that creditors must be given sufficient evidence to justify any insolvency practitioner fees to be drawn.
The insolvency industry is heavily regulated, and insolvency practitioners risk being criticised and possibly reprimanded by licensing bodies if they don’t comply.
If you’re looking for an insolvency practitioner, Hudson Weir can help. Get in touch now to speak to a professional.