Opinion: Insolvency fee plan will help provide transparency and show value

AS CONSUMERS we pay for things on a daily basis and we like to know what we’re paying for. I appreciate that very few consumers will appoint an insolvency practitioner, but I think the principle holds true. That is, creditors need to know what to expect from a case – what will it cost and what will I get back?

Yet where businesses and individuals are owed money and relying on insolvency practitioners to recover it from failed businesses, they may be charged an hourly rate with no clear indication of how much time will be used. It is difficult for an unsecured creditor in these circumstances to drive down the costs. This reduces confidence in the fees regime.

The government has therefore introduced rules requiring insolvency practitioners, when charging time costs, to provide creditors with an upfront fee estimate, detailing what work will be done, by whom and how long it will take. Once agreed, these fees cannot be increased without agreement from the creditors, essentially putting a cap on the fees.

Transparency

The new rules will increase transparency for creditors as they will have a much clearer indication of what the likely cost of an insolvency are. The provision of clear information, setting out what work will be done and what it will cost will also give creditors more knowledge when agreeing fees. Insolvency practitioners will get a chance to demonstrate to creditors what they do and the value they deliver in return for their fees.

In 2013, I asked professor Elaine Kempson of Bristol University to look at the charging structure of insolvency practitioner fees and how creditor concerns might be addressed. Her report showed that where secured creditors had been fully paid and only unsecured creditors were still involved the controls did not work as they should, which resulted in fees being considerably higher.

I recognise that insolvency practitioners have a hard job to do. The reality of insolvency is that creditors are likely to lose substantial sums. It is all the more important that they have confidence that insolvency practitioners will charge fair and reasonable fees and secure the best outcomes for creditors.

These measures complement the regulatory objectives in the Small Business, Enterprise and Employment Bill, currently before parliament, which gives the regulators responsibility for looking at fee-related matters and ensuring that fees are ‘fair and reasonable’.

Jo Swinson is business minister, with responsibility for the Insolvency Service