North East creditors of insolvent businesses and individuals will be the victims of a dramatic hike in government insolvency fees.
That’s the view of Neil Harrold, North East chair of insolvency trade body R3, after the introduction by the government, amongst other new charges, of a £6,000 fee 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, with the government estimating that the new fees will cost creditors a total of almost £8m per year.
Neil Harrold, who is also a partner with Hay & Kilner Solicitors, says: “The government’s new insolvency fees are a very bad deal for North East creditors and will hit the very people that the insolvency regime is designed to try to support.
“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 in the simplest situations where the government does nothing, is essentially a tax on creditors who have already lost money.
“These new fees have been introduced without warning or consultation, and the government is neither treating creditors fairly nor working to the same standards as insolvency practitioners.”
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, even when a majority of creditors seek an insolvency practitioner appointment.
Unlike insolvency practitioners, the government’s Official Receivers are not overseen by an independent regulator and do not have their fees approved by creditors. Official Receivers do not need to meet the same level of qualifications or standards as insolvency practitioners.
Neil Harrold continues: “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.
“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, but the ability to charge fees should come with responsibilities.
“Insolvency practitioners’ fees are approved by creditors and our work is heavily regulated. The fees regime for insolvency practitioners was further improved recently to allow even more creditor oversight, and we will be seeking urgent discussions with the government on the damaging and costly implications that their new fees will have on creditors in North East insolvencies.”