When a company is facing financial difficulties, the director may choose to appoint an Insolvency Practitioner to manage the process of restructuring or winding up the company. One question that often arises is, who pays the Insolvency Practitioner’s fees? In this blog post, we will discuss the responsibilities of the company, the Insolvency Practitioner, and their fees.
Responsibility of the Company
The company is responsible for the payment of the Insolvency Practitioner’s fees. However, if the company is insolvent, the fees must be paid from the company’s assets. These could include any cash in the bank, money due from customers or from physical assets which can be sold. If there are no assets available to pay the fees, the Insolvency Practitioner will not be able to take on the case until they have been guaranteed payment. In this instance, the director may choose to pay the fees from their own personal funds. It is important to note that, depending on the type of insolvency process being undertaken, the fees can vary.
Responsibility of the Insolvency Practitioner
The Insolvency Practitioner is responsible for issuing an engagement letter to the company, which includes all the terms and fees involved in the service being provided. The Insolvency Practitioner must also provide regular updates on the case and the fees involved. In addition, the Insolvency Practitioner must keep accurate records of the time spent on the case in order to determine their fees.
Calculating the Fees
The fees charged by an Insolvency Practitioner are calculated based on the type of insolvency process being undertaken and the complexity of the case. The fees can be determined by either a fixed fee structure, or a percentage of the assets being dealt with, or based on hourly rates. A fixed fee is usually a set amount for the entire case. A percentage fee is calculated based on the value of the assets being dealt with. It is important to discuss the fee structure with your Insolvency Practitioner before commencing the service.
Legal Requirements and Transparency in Insolvency Fees
Since 1 October 2015, changes to UK insolvency legislation have introduced new rules around transparency in insolvency practitioner fees, where they are being paid based on hourly rates (also known as ‘time costs’). These rules are designed to give creditors greater visibility over the anticipated costs involved in various insolvency procedures, including Creditors’ Voluntary Liquidation (CVL), Administration, and Bankruptcy.
Under the new rules, insolvency practitioners must provide creditors with a written fee estimate before any time costs can be charged, clearly outlining the anticipated costs of the process. This estimate must be submitted to creditors and approved before any fees are drawn, ensuring all parties are informed from the outset.
In a typical CVL, the fee structure is often broken down into two parts:
- Pre‑appointment fees – covering work carried out in preparing the Statement of Affairs, holding meetings with directors, and communicating with creditors.
- Post‑appointment (liquidator’s) fees – these may be fixed, calculated as a percentage of asset realisations, or based on time spent, as agreed by creditors.
These rules were introduced to address concerns that fees were not always clearly disclosed early in the process. Creditors are now given more control, with the ability to question or challenge fees before an insolvency practitioner is formally appointed. They also have the right to propose an alternative practitioner if they feel another may provide better value or service.
Reviewing the Fees
If you are in any doubt about the fees being charged by your Insolvency Practitioner, you can request a review of their fees. However, it is important to note that any additional work required to complete the review will incur additional fees. If you are unable to resolve the fee dispute with the Insolvency Practitioner, you can contact the regulatory body for further assistance.
Appointing an Insolvency Practitioner
Appointing an Insolvency Practitioner can be a difficult decision for any company director, especially in times of financial distress. It is important to understand who is responsible for paying the Insolvency Practitioner’s fees and how they are calculated. As a company director, you should always ensure that you have a clear understanding of the fees involved before engaging an Insolvency Practitioner. If you are in any doubt, seek professional advice to ensure you make an informed decision.
