What Are Insolvency Practitioner Fees?
There isn’t a set ‘insolvency practitioner fee’, as no one case is the same. However, this article will help shine a light on the process, the fees in voluntary liquidation and how creditors can influence those costs.
Introduction to voluntary liquidation
To understand the nature of insolvency practitioner fees, we need to look at the process of voluntary liquidation. This refers to the process through which directors can opt to wind up the company, (rather than compulsory liquidation for example, which may follow receipt of a winding up petition from a creditor). Voluntary liquidation offers a much more controlled option, giving directors time to talk through the insolvency practice with a licensed insolvency practitioner and work to agreed timescales. If you do opt for voluntary liquidation, the conduct of the liquidation will be considered by creditors at a decision procedure for that purpose, usually a virtual meeting. The running of the voluntary liquidation will depend on what is agreed by the creditors. The main role of the insolvency practitioner, however, is to maximise the return to your creditors.
How does an insolvency practitioner get paid?
A licensed insolvency practitioner (IP) must be fair and transparent with their decisions regarding the voluntary liquidation costs, and realising company assets. They must provide information regarding their fees to the creditors, as stated in the Statement of Insolvency Practice 9. Those liquidation fees – including any costs in selling company assets and payments of service (remuneration) – for the IP are then subject to creditor approval. Below, we have outlined the alternate insolvency practitioner fees to be aware of before speaking to an insolvency practice.
- Fixed fee: Insolvency practitioner fees can be charged on a fixed fee basis. This fee is agreed at the outset, and the IP sets out their costs in relation to the voluntary liquidation process.
- Percentage basis: Often, liquidation fees are set out on a percentage basis. An IP will work out how much the case is likely to cost to manage, as well as the realisations and distributions, and charge a percentage to creditors based on those findings.
- Time cost basis: A time cost basis is the most common form of payment for insolvency practitioner fees. The IP must provide an estimate of the time spent on the case, alongside fees and expenses, and submit this for creditor approval.
- Lastly, the fees can include a mixed basis of the above.
In some cases, the IP may wish to change the original estimated fee in complex cases, and they must seek approval from the company’s creditors to do so.
Creditors role in insolvency practitioner fees
When claiming for fees, the licensed insolvency practitioner must put forward a statement of affairs. The statement of affairs is then looked over by the business creditors, who will decide whether to agree to the terms relating to the costs and the remuneration for the IP. This virtual meeting has the power to agree to the terms of the remuneration, but creditors can also modify the terms of the proposal submitted by the licensed insolvency practitioner. Alternatively creditors may opt to form a creditors committee, meaning the members of the committee will decide on the liquidator’s fees.
The statement of affairs and other information from the IP should provide creditors with:
- Supporting information for the voluntary liquidation costs, including up to date receipts and payment accounts, to justify their proposed fee
- They should submit a fee estimate, setting out estimated charges for each area of work
- The details of work to be carried out, such as selling of company assets, and why this is necessary must also be included in the statement
- The charge-out rates of company staff, including the average hourly rate at which the staff are charged out
- Allocated costs that may be incurred, such as room hire and document storage when looking into the company accounts
How to liquidate a company for free?
Whilst creditors will make the decision in relation to fees once a liquidator is appointed, Insolvency Practitioners will also need to be paid for the pre appointment work involved in placing the company into liquidation. Where there are little to no assets they will often require the director to make this payment personally.
We understand upfront liquidation fees can be considerable where a company is already facing financial difficulties and you may not have been able to draw your salary for some time. If you are unable to pay your insolvency practitioner fees, it’s possible that the insolvency practitioner may agree to be paid from any funds you may be entitled to from the redundancy payments service.
The insolvency practitioner must consent to this, and they can take a risk on their fees if they believe you are truly entitled to these funds. We have outlined a comprehensive guide for you to take a look at how to liquidate a company for free.
If you are facing the early signs of insolvency, you must seek urgent advice. Our business rescue experts can discuss the relevant procedures and provide free, confidential advice.