Insolvency practitioners work hard to manage insolvency procedures in an orderly way. They ensure creditors are treated fairly, they repay as much as possible to creditors, they help rescue businesses and jobs, they help individuals find relief from problem debt, and they help investigate fraud.
Managing an insolvency procedure can be a complex task. Large cases might require staff to be posted around the country to trade scores of sites. Hours of investigation might be required to track down assets or bring fraudsters to justice. Being an insolvency practitioner requires the application of a wide range of specialist skills, including forensic accountancy, fraud investigation, detailed tax knowledge, and business know-how.
An important part of an insolvency practitioner's role is that they are responsible to the body of creditors in an insolvency procedure. This means insolvency practitioners report to creditors on a regular basis and, importantly, insolvency practitioners must seek creditor approval for their fees.
An insolvency practitioner's fees are paid out of the assets of the insolvent individual or company whose affairs they are dealing with.
There are three ways in which insolvency practitioners' fees may be charged:
- As a percentage of the value of the assets realised during an insolvency procedure, or as a percentage of the assets with which an insolvency practitioner has had to deal in an insolvency procedure;
- By reference to the amount of time spent on a case by the insolvency practitioner and their staff;
- As a fixed amount.
In a liquidation, bankruptcy, or administration where the fee is to be based on the amount of time spent on a case, the insolvency practitioner must provide creditors with an estimate of the expenses likely to be incurred, a proposal of the work to be undertaken, and an estimated fee. This fee estimate acts as a cap on final payment: if the case turns out to be more difficult or time-consuming, the insolvency practitioner will need to seek creditors' approval to raise the fee above the initial estimate.
Given that funds in insolvency procedures are limited, insolvency practitioners are not always fully remunerated for the work they carry out. In the hierarchy of how funds are distributed after an insolvency, insolvency practitioners' fees are included as part of the costs of the insolvency process. In this hierarchy, the costs of the process sit behind money owed to secured creditors.
Creditors do not have a say on fees in cases handled by the Government's Official Receiver. The Official Receiver has fixed fees: a £6,000 'general fee' applied in every case, and an additional 15% of the assets realised by the Official Receiver. The £6,000 fee must be paid even in a case which is later passed to an insolvency practitioner.
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