Introduction
The insolvency legislation was changed in October 2015, with one or two exceptions, for insolvency appointments made from that time. This sheet explains how we intend to apply the alternative fee bases allowed by the legislation when acting as office holder in insolvency appointments. The legislation allows different fee bases to be used for different tasks within the same appointment. The fee basis, or combination of bases, set for an appointment is / are subject to approval, generally by a committee if one is appointed by the creditors, failing which the creditors in general meeting, or the Court.
Further information about creditors’ rights can be obtained by visiting the creditors’ information micro-site published by the Association of Business Recovery Professionals (R3) at www.creditorinsolvencyguide.co.uk
Details about how an office holder’s fees may be approved for each case type are available in a series of guides issued with Statement of Insolvency Practice 9 (SIP 9) and can be accessed at:
www.r3.org.uk/technical-library/england-wales/technical-guidance/fees
Statement of Insolvency Practice 9 can be accessed at www.r3.org.uk/technical-library/england-wales/sips
A hard copy of the documents made available online may be requested free of charge from Abbey Taylor Limited, Unit 6 12 O’clock Court, Attercliffe Road, Sheffield, S4 7WW. Please note that we have provided further details in this policy document.
SIP 9 also contains various requirements that the office holder must comply with in connection with their remuneration, both when seeking approval and when reporting to creditors and other interested parties after approval. One of the matters that an office holder has to comply with is that they must also seek approval for any payments that could reasonably be perceived as representing a threat to the office holder’s objectivity or independence by virtue of a professional or personal relationship, including to an associate. Where it is anticipated that such payments will be made in a case they will be separately identified when seeking approval for the basis of the office holder’s remuneration.
Other than in respect of Voluntary Arrangements, an office holder is required to record the time spent on casework in all cases, even if they are being remunerated for that work on a basis other than time costs. Time is recorded directly to the relevant case using a computerised time recording system and the nature of the work undertaken is recorded at that time. The work is generally recorded under the following categories:
- Case Administration (including statutory reporting) – includes work such as planning how the case will be administered and progressed; the administrative set up of the case; notifying creditors and others of the appointment; keeping the records relating to the case up to date; and reporting on progress of the case to creditors and others.
- Realisation of Assets – includes work such as identifying, securing and insuring assets; dealing with retention of title claims; collecting debts owed; and selling assets.
- Investigations – includes work such as undertaking an initial review of the financial affairs of the company or debtor; undertaking a detailed investigation with a view to making recoveries for the benefit of creditors where matters such as preferences or wrongful trading come to light as a result of the initial review; and reporting to the Insolvency Service on the conduct of the directors.
- Creditors (claims and distributions) – includes work such as communicating with creditors; dealing with creditors’ claims; dealing with employees and liaising with the redundancy payments office; and where funds realised allow, paying dividends to creditors.
- Trading – includes work such as managing and controlling all aspects of the business; and preparing financial records and information relating to that trading.
- Case specific matters.
Time cost basis
When charging fees on a time costs basis we use charge out rates appropriate to the skills and experience of a member of staff and the work that they perform. This is combined with the amount of time that they work on each case, recorded in 6-minute units, with supporting narrative to explain the work undertaken.
Charge-out Rates
| Grade of staff | Rates per hour from 08/07/19 (£) |
| Insolvency Practitioner | 450 – 650 |
| Manager | 350 – 400 |
| Other Senior Professionals | 200 – 250 |
| Assistants & Support Staff | 150 – 200 |
These charge-out rates charged are reviewed on an annual basis and are adjusted to take account of inflation and the firm’s overheads.
When we seek time costs approval we have to set out a fees estimate. That estimate acts as a cap on our time costs so that we cannot draw fees of more than the estimated time costs without further approval from those who approved our fees. When seeking approval for our fees, we will disclose the work that we intend to undertake, the hourly rates we intend to charge for each part of the work, and the time that we think each part of the work will take. We will summarise that information in an average or “blended” rate for all the work being carried out within the estimate, and by reference to each separate category of work. The blended rate is calculated as the prospective average cost per hour, based upon the estimated time to be expended by each grade of staff at their specific charge out rate. We will also say whether we anticipate needing to seek approval to exceed the estimate and, if so, the reasons that we think that may be necessary.
The disclosure that we make should include sufficient information about the insolvency appointment to enable you to understand how the proposed fee reflects the complexity (or otherwise) of the case, any responsibility of an exceptional kind falling on the office holder, the effectiveness with which the office holder has carried out their functions, and the value and nature of the property with which the office holder has to deal.
If we subsequently need to seek authority to draw fees in excess of the estimate, we will say why we have exceeded, or are likely to exceed the estimate; any additional work undertaken, or proposed to be undertaken; the hourly rates proposed for each part of the work; and the time that the additional work is expected to take. As with the original estimate, we will summarise that information in an average or “blended” rate for all of the work being carried out within the estimate, and by reference to each separate category of work, and will also say whether we anticipate needing further approval and, if so, why we think it may be necessary to seek further approval.
Percentage Basis
The legislation allows fees to be charged on a percentage of the value of the property with which the office holder must deal (realisations and / or distributions). Different percentages can be used for different assets or types of assets. A report accompanying any fee request will set out the potential assets in the case, the remuneration percentage proposed for any realisations and the work covered by that remuneration, which may solely relate to work undertaken in connection with the realisation of the assets, but might also include other categories of work as listed earlier. The report will also include details of the expenses that will be, or are likely to be, incurred.
The percentage approved in respect of realisations will be charged against the assets realised, and where approval is obtained on a mixture of bases, any fixed fee and time costs will then be charged against the funds remaining in the liquidation after the realisation percentage has been deducted.
A percentage relating to distributions made to creditors may also be requested, in order to cover the work associated with the agreement of claims and making the distributions.
The disclosure that we make will include sufficient information about the insolvency appointment to enable understanding of how the proposed fee reflects the complexity (or otherwise) of the case, any responsibility of an exceptional kind falling on the office holder, the effectiveness with which the office holder has carried out their functions, and the value and nature of the property with which the office holder has to deal. In order to meet the requirements of SIP 9, it will also explain why the basis requested is expected to produce a fair and reasonable reflection of the work that we anticipate will be undertaken on the case.
If the basis of remuneration has been approved on a percentage basis then an increase in the amount of the percentage applied can only be approved by the committee or creditors (depending upon who approved the basis of remuneration) in cases where there has been a material and substantial change in the circumstances that were taken into account when fixing the original level of the percentage applied. If there has not been a material and substantial change in the circumstances, then an increase can only be approved by the Court.
Fixed Fee
The legislation allows fees to be charged at a fixed amount and different fixed amounts can be used for different tasks. A report accompanying any fee request will set out the fixed fee that we proposed to charge and the work covered by that remuneration, as well as the expenses that will be, or are likely to be, incurred.
The disclosure that we make will include sufficient information about the insolvency appointment to enable understanding of how the proposed fee reflects the complexity (or otherwise) of the case, any responsibility of an exceptional kind falling on the office holder, the effectiveness with which the office holder has carried out their functions, and the value and nature of the property with which the office holder has to deal. In order to meet the requirements of SIP 9 we will also explain why the basis requested is expected to produce a fair and reasonable reflection of the work that we anticipate will be undertaken on the case.
If the basis of remuneration has been approved on a fixed fee basis then an increase in the amount of the fixed fee can only be approved by the committee or creditors (depending upon who approved the basis of remuneration) in cases where there has been a material and substantial change in the circumstances that were taken into account when fixing the original level of the fixed fee. If there has not been a material and substantial change in the circumstances then, an increase can only be approved by the Court.
Direct Costs
Where we seek approval on a percentage and/or fixed fee basis, in order to meet the requirements of SIP 9 we also have to disclose the direct costs that are included within the remuneration that will be charged on those bases in respect of the work undertaken. The following are direct costs that will be included in respect of work undertaken in respect of each of the standard categories of work where the office holder is to be remunerated for such work on either a percentage or fixed fee basis:
- Case Administration (including statutory reporting) – staff costs
- Realisation of Assets – staff costs
- Investigations – staff costs
- Creditors (claims and distributions) – staff costs
- Trading – staff costs
We do not envisage that we will include any other costs other than staff costs when requesting our fees on a fixed or percentage basis. All other costs required to be paid will be as an expense – however, if on an individual case this position changes this will be brought to the creditors attention.
Mixed Bases
If remuneration is to be sought on a mixed basis, we will make it clear in the report accompanying the request to fix the basis of remuneration which basis will be charged for each category of work that is to be undertaken on the case.
Members’ Voluntary Liquidations and Voluntary Arrangements
The legislation is different for members’ voluntary liquidations (MVL), Company Voluntary Arrangements (CVA) and Individual Voluntary Arrangements (IVA). In MVLs, the company’s members set the fee basis, often as a fixed fee, and SIP 9 does not apply unless the members specifically request it. In CVAs and IVAs, the fee basis is set out in the proposals and creditors approve the fee basis when they approve the arrangement.
All Fee Bases
Except for IVAs and CVAs, which are usually VAT exempt, the office holder’s remuneration invoiced to the insolvent estate will be subject to VAT at the prevailing rate.
Expenses
In accordance with Statement of Insolvency Practice 9 (SIP9), expenses are any payments from the estate which are neither an office holder’s remuneration nor a distribution to a creditor or a member. Expenses also includes disbursements. Disbursements are payments which are first met by the office holder, and then reimbursed to the office holder from the estate.
Expenses are divided into those that do not need approval before they are charged to the estate (category 1) and those that do (category 2):
- Category 1 expenses: These are payments to persons providing the service to which the expense relates who are not an associate of the office holder.
- Category 2 expenses: These are payments to associates or which have an element of shared costs.
Category 1 expenses are directly referable to an invoice from a third party, which is either in the name of the estate or Abbey Taylor Limited; in the case of the latter, the invoice makes reference to, and therefore can be directly attributed to, the estate. These expenses can be paid without prior approval either by a direct payment from the estate or, where the firm has made payment on behalf of the estate, by a recharge of the amount invoiced by the third party. Examples of category 1 expenses are statutory advertising, external meeting room hire, external storage, specific bond insurance and company search fees.
Category 2 expenses are either payments to associates or payments in respect of expenses that have an element of shared costs. These expenses require approval in the same manner as an office holder’s remuneration, whether paid directly from the estate or as a disbursement. The practise may seek to recover the following category 2 expenses that include an element of shared costs:
| Mileage | 45p per mile |
| Photocopying | 5p per sheet |
Professional Advisors may be instructed to assist the office holder where they consider that such assistance is required to enable them to administer the case. The fees charged by any professional advisors will be recharged at cost. Where the professional advisor is not an associate of the office holder, it will be for the office holder to agree the basis of their fees. Where the professional advisor is an associate of the office holder, it will be for those responsible for fixing the basis of the office holder’s remuneration to approve payments to them. The fees of any professional advisors are subject to the rights of creditors to seek further information about them or challenge them. Professional advisors that may be instructed on a case include:
- Solicitors / Legal Advisors
- Auctioneers / Valuers
- Accountants
- Quantity Surveyors
- Estate Agents
- Other Specialist Advisors
Reporting and Rights to Challenge
Once the basis of the office holder’s remuneration has been approved, a periodic report will be provided to any committee and to each creditor. The report will provide a breakdown of the remuneration charged by the office holder in the period covered by the report, i.e., the amount that the office holder is entitled to draw, together with the amount of remuneration actually drawn. If approval has been obtained for remuneration on a time costs basis, the time costs incurred will also be disclosed, whether drawn or not, together with the “blended” rates of such costs. The report will also compare the actual time costs incurred with those included in the fees estimate prepared when fixing the basis of the remuneration, and indicate whether the fees estimate is likely to be exceeded. If the fees estimate has been exceeded, or is likely to be exceeded, the report will explain why that is the case.
The report will also provide information about expenses incurred in the period covered by the report, together with those actually paid, together with a comparison with the estimated expenses. If the expenses incurred, or anticipated to be incurred, have exceeded the estimate provided the report will explain why that is the case.
Under the insolvency legislation the report must also include a statement of the legislative rights of creditors to request further information about the remuneration charged and expenses incurred in the period covered by the report, or to challenge them on the grounds that they are excessive. Extracts of the relevant insolvency rules dealing with these rights are set out below. Once the time period to seek further information about the office holder’s remuneration and/or expenses for the period covered by the report has elapsed, then a Court Order is required to compel the office holder to provide further information about the remuneration and expenses. A Court order is required to challenge the office holder’s remuneration and/or expenses for the period covered by the report. Once that period has elapsed, then a separate Court Order is required to allow an application out of time.
Under rule 18.9 of the Insolvency (England and Wales) Rules 2006, an unsecured creditor may, with the permission of the Court or with the concurrence of 5% in value of the unsecured creditors (including the creditor in question) request further details of the office holder’s remuneration and expenses, within 21 days of receipt of any report for the period. Any secured creditor may request the same details in the same time limit.
Under rule 18.34, an unsecured creditor may, with the permission of the Court or with the concurrence of 10% in value of the unsecured creditors (including the creditor in question), apply to court to challenge the amount and/or basis of the office holder’s fees and the amount of any proposed expenses or expenses already incurred, within 8 weeks of receipt of any report for the period. Any secured creditor may make a similar application to court within the same time limit.