Insolvency practitioners will have to provide upfront estimates of the cost of working on insolvency cases, under new rules announced today.
New rules laid in parliament today will require insolvency practitioners to provide a summary of estimated costs, the work to be undertaken and, where an hourly rate is proposed, an estimate of the expected time.
These estimates will act as a cap on fees because, once agreed, they can only be changed by agreement between the insolvency practitioner and creditors.
The new measures, announced by business minister Jo Swinson, are designed to end the uncertainty of unlimited hourly charges for creditors.
Swinson said: “Increased transparency is a sensible and practical way to strengthen the hands of those owed money in an insolvency.
“It will give insolvency practitioners the opportunity to demonstrate how their services provide value for money.”
The minister added that initial fee estimates will strengthen creditors’ ability to ensure fees are fair and reasonable.
Under current rules insolvency practitioners’ fees are usually charged on an hourly rate without indication of the work that will be undertaken or how long it will take.
The changes, which take effect from October this year, follow an independent review and consultation into how insolvency practitioners charge their fees. The review was prompted by concerns that the current system allowed excessive fees to be charged.
Giles Frampton, president of insolvency trade body R3, said: “We are very pleased with the government’s practical proposals for updating the insolvency fees-setting process.
“An upfront estimate should work for both creditors and the insolvency profession, and will help improve trust and transparency in our insolvency regime.”
Philip King, chief executive of the Chartered Institute of Credit Management (CICM), said: “The CICM has been vocal in wanting to see up-front estimates for work undertaken, so that the element of surprise is removed further down the road in the insolvency procedure.
“The introduction of new rules is therefore to be strongly welcomed.”
By Marcel LeGouais