When a company enters insolvency while owing money to creditors, it can feel as though the chances of getting what you are owed are very small indeed.
In recent years, a key element in this has been the fees charged by the insolvency practitioners themselves – including their ability to add a limitless charge for man-hours worked on to the final bill.
For creditors this can be excruciating, watching the very people who are tasked with rescuing the company charge for hour after hour of labour until there is nothing left for those who were already owed money.
But it could soon be a thing of the past, with plans from the Insolvency Service that could give creditors the right to veto any increase in the insolvency practitioners’ fees.
Under rules laid out in parliament, insolvency practitioners will have to set out their expected charges at the beginning of the process – including the work to be undertaken, the hourly rate and the expected number of hours to be worked.
The estimates will then be used as a cap on their total fees and, while they can be changed later, existing creditors must be consulted before the sums can be raised.
Business minister Jo Swinson said: “Initial fee estimates that can only be changed by agreement will strengthen the position of those owed money to ensure that fees are fair and reasonable.
“Increased transparency is a sensible and practical way to strengthen the hands of those owed money in an insolvency and will give insolvency practitioners the opportunity to demonstrate how their services provide value for money.”
The rules should also mean that, when a company enters insolvency with substantial assets, these can be sold off to pay creditors, without the proceeds simply being eaten up by the insolvency practitioners’ fees.
However, it should also not excessively disadvantage the insolvency practitioners from charging a fair rate for the work they do, as their fees can be calculated from the outset based on a reasonable expectation of the work involved, with any legitimate increases agreeable later with the insolvent company’s creditors.