Public outrage over spiralling insolvency fees could be a thing ofeport demanding they reflect work done, writes Phillip Inman. the past, after the government gave its backing last week to a report by Mr Justice Ferris setting out new rules for paying insolvency practitioners.
The proposals aim to end the situation, highlighted by the liquidation of Robert Maxwell’s private estate by insolvency firm Buchler Phillips, when fees charged by the firm reached almost half the assets it recovered. The report was also seen as a warning to firms that attempts to extend liquidations unnecessarily would be stamped out. But accountants and lawyers, who make up the bulk of practitioners, gave the report only a cautious welcome, claiming it could damage insolvency work if it cut fees across the board.
The Ferris report, published last Friday, says fees must no longer be based on timesheets submitted by practitioners, but should take into account other factors, such as their success at recovering assets.
It suggests that creditors should be able to enter into ‘no win, no fee’ arrangements, which would overcome the common problem when creditors lack the funds to pay for insolvency work. Ferris also sets out how inexperienced judges should examine applications for fees by practitioners, mainly through the use of a ‘qualified assessor’.
Practitioners, under the proposals, will be forced to submit explanations of how they spent their time on cases rather than just submit timesheets. Ferris singles out accountants for particular criticism, pointing out that they have traditionally offered courts timesheets without any explanation of the case’s complexity or the seniority of the staff working on the case.
Murdoch McKillop, president of the Society of Insolvency Practitioners, a partner at Arthur Andersen and a member of the Ferris working party, said the SPI would produce best-practice guidelines for its members following publication of the report.
‘These will provide creditors with increased clarity and provide more information than hitherto on the work done and the value achieved by insolvency practitioners,’ he said.
Tony Howton, head of corporate recovery at Kidsons Impey, welcomed the move to greater transparency, but questioned whether creditors were in a position to judge the success of practitioners.
‘Creditors are probably not experienced enough to judge if the practitioner has performed well or not. It is difficult to have a system that judges value without professionals being involved.’
To prove its case, the SPI has already kicked off a pilot study, involving a sample of firms, to show creditors why some practitioners charge higher fees. The study aims to show creditors why rates vary between firms and develop a set of guidelines that creditors can use to judge between rival practitioners.
But Tory MP Nick Gibb, former tax manager at KPMG, said fee levels should be set by the market rather than by the government.
‘If you want the best people to take part in insolvency you are going to have to pay the fees they charge,’ he said.
‘If you regulate and interfere with the way they issue bills you will find the top people in accountancy will no longer take part in insolvency work and it will be run by people less well qualified.’
Peter Totty, a partner at solicitor Allen & Overy and another member of the Ferris working party, said he shared the concern that ‘the more able members of the profession will be told by their managing partners to do more profitable work’ if fees are driven down ‘unreasonably’.
WHAT FERRIS SAYS
End fee payments based on time-sheets
– Fees to be paid on ‘proportional’ basis – matching the regulatory requirements to the value of the assets recovered
– New scale of charges to replace Official Receivers list for smaller cases, based on geography and types of work.
To be used as benchmark for other work
– Judges to appoint qualified assessor to advise on fees
– Practitioners to keep full records of activity during insolvency
– Guidance to be issued on how to present claims for fees
– Practitioners must question legal bills before submitting them to court
– Rules to be drafted setting out when creditors should be paid on interim basis
– Committee to continue development of ‘best practice’ guidance for insolvency practitioners.
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