Smaller insolvency firms have claimed that the fee structures around undertaking personal insolvency work is pricing them out of the market.

A government report into the protocol around the Individual Voluntary Arrangement (IVA) process, where debtors have a repayment plan organised for them, found that smaller insolvency specialists were concerned that a standard fee for their work was not "economically viable".

The IVA process requires an insolvency practitioner (IP) to arrange for the debtor to make monthly payments to creditors with the repayment period generally lasting five years.

In most circumstances the IP will take their fees from the first five payments made but they claim this does not take into account the cost of managing the IVA for the rest of its lifecycle, they said in a report by the Insolvency Service.

The review looked at IVAs submitted under the terms of the protocol.

IVA factories and practitioners expressed concern regarding "standard fees" and the way creditors and their agents calculated the IVA cost based on a percentage of the final dividend. Respondents agreed that fees were historically too high, but firms argued they were now so low some were being priced out of the market.

However creditors and their agents, said they were yet to see any evidence that fees charged by the IVA providers were too low.

One of the smaller IVA providers that took part in the anonymous survey said it could no longer take on IVAs on repayments of less than £500 a month, as this was the minimum level to cover their costs.

The smaller firms also felt they were being "squeezed" out by the larger rivals, as it was impossible for them to compete with their marketing resources.

An Insolvency Service spokesman said: "At present there are no plans to introduce further regulation of IVAs."

"The situation will remain under review however, and we can reconsider this at a later date, if circumstances indicated we should," he added.

Other findings indicated dissatisfaction regarding the IVA Standing Committee; a representative group of creditors, debtors, IPs and regulatory bodies, which monitor and consult on the protocol.

Many respondents felt "disconnected" from the decision-making process and whether the committee were properly representing the interests of providers.

Further reading:

Analysis: Insolvency profession under the spotlight