New rules could help reduce insolvency practitioner fees

The consultation on strengthening the regulatory regime and fee structure, which finished its consultation stage on Friday, said the main objective is ensuring remuneration of Insolvency Practitioners represents value for money: 

“Recent independent reports have concluded that there is clear evidence of the difficulty unsecured creditors face in controlling Insolvency Practitioners fees and that there is a need to strengthen the regulatory framework in this area.” 

Professor Kempson, who researched the difficulties of the current regime, said there is little effective oversight by unsecured creditors of the work undertaken by Insolvency Practitioners and this leads to higher costs, adding that “little has changed to address this market failure”.

Kempson estimated to be nine per cent higher for in like-for-like cases than where secured creditors ‘control’ an Insolvency Practitioners fees in a “conservative” estimates.

Jenny Willott, Consumer Affairs Minister, who introduced the consultation, said: “Fees charged to unsecured creditors can be higher due to unsecured creditors being in a weaker bargaining position than secured creditors. This can result in over charging by the insolvency practitioner and inefficiencies in administering the case. This leads to a transfer of resources from unsecured creditors to Insolvency Practitioners that for both fairness and efficiency reasons we wish to remove.”

However, the Law Society has warned against a “prescriptive regime”, which prevents Insolvency Practitioners charging by the hour: 

“It needs to be recognised that the outcome of insolvency proceedings can be uncertain, that there is a certain basic amount of work to be done which may, on occasion appear disproportionate to the amount recovered. The concept of ‘value for money’ will be very difficult to achieve and may mean that a number of practitioners may feel this market is no longer relevant for them.” 

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