Greater transparency requirements for Insolvency Practitioners

In 2013, a review of UK insolvency law by Elaine Kempson (of Bristol University) identified that the routine practice amongst Insolvency Practitioners (IP’s) to charge by the hour without providing an indication of the work required be done or the time it was expected to take meant that non-preferential (predominantly trade) creditors in particular did not have enough control over the fees to be paid.

In response, the law has now been changed and new fees rules introduced for IP’s. From yesterday, IP’s must provide a summary of their estimated costs and the work that they propose to undertake. Additionally, where proposed fees are based on an hourly rate, an estimate of the amount of time they expect to spend working on the case must be provided. Once agreed by creditors, the value set out in the original estimate will serve as a ‘cap’ and may only be increased by the IP seeking the agreement of those that are owed money by the insolvent company. These new requirements apply to all cases where the IP is appointed on or after 1 October 2015 and have no retrospective effect on cases appointed before this date.

It is anticipated that raising awareness of the costs of insolvency practitioners and the insolvency process will be broadly welcomed and should ultimately improve public confidence in the insolvency process. It is acknowledged that providing an estimate at commencement for larger or more complex insolvencies may be difficult. However, making creditors aware of the scope of the necessary work to be undertaken and, where appropriate, the time likely to be required for this work will further improve creditor understanding of the process and thereby lead to creditors having more trust and confidence in the insolvency regime.

A number of other changes are also being introduced which include strengthening of the company director disqualification regime. These changes will make it easier to disqualify directors of limited companies who can be demonstrated to have influenced or instructed other directors to behave improperly or those who have a track record of being involved in failing companies. The Secretary of State will have a maximum of three years (rather than two years) after a company is declared insolvent to bring disqualification proceedings.

Should you require any further information on the changes now being introduced and how you may be affected, please contact us.