New and increased government insolvency fees, introduced yesterday (21 July), will hurt creditors of insolvent companies and individuals and undermine the UK insolvency regime, warns insolvency and restructuring trade body R3.
Among other new fees, the government is introducing a fee of £6,000 in every compulsory liquidation or bankruptcy, even when the case is handled by a private sector insolvency practitioner rather than the government’s Official Receiver.
A further fee of 15% of all realisations will apply in all Official Receiver-run cases.
The government estimates the new fees will cost creditors almost £8m per year.
The government, which automatically handles compulsory liquidations and bankruptcies in the first instance, has also changed its guidance on passing insolvency cases to licensed insolvency practitioners.
Traditionally, the Official Receiver has only kept cases which are straight-forward or do not have any assets to be realised.
The change will allow the government to hold onto more cases, possibly even when a majority of creditors seek an insolvency practitioner appointment.
R3 says that unlike insolvency practitioners, the government’s Official Receivers are not overseen by an independent regulator and they do not have their fees approved by creditors.
The trade body claims that Official Receivers do not need to meet the same level of qualifications or standards as insolvency practitioners.
Andrew Tate, R3 president, commented: “The government’s new insolvency fees are a very bad deal for the UK’s creditors.”
“The insolvency profession understands the government needs money to fund its Official Receivers.
“But disenfranchising creditors, holding onto cases its staff may not be qualified to handle, and forcing creditors to pay new, uncompetitive fees undermines the insolvency regime and will mean fewer returns.”
“By threatening creditor returns, the government could undermine the UK’s World Bank insolvency ranking. Improving this ranking was one of the government’s manifesto commitments.”
He added: “The government is putting creditors at risk of seeing fewer returns, and is asking them to pay more for the pleasure.
“The additional £6,000 charge for every case, even on the simplest case where the government does nothing, is essentially a tax on creditors who have already lost money.”
“Fees are a necessity in insolvency work. Without them, money would not be returned to creditors in an orderly and fair fashion after an insolvency.
“However, the ability to charge fees should come with responsibilities.”