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New Fee Information to be Provided to Creditors

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We are sure that you are all aware of the changes to insolvency procedure and practice which take effect from 1 October 2015. One of the most important changes relates to office holders’ fees and the need to obtain prior approval from creditors.

In the case of administrations, insolvent liquidations and bankruptcies where the appointment takes effect on or after 1 October 2015, the office holder will be required to provide information to creditors before having the basis of their fees approved.

In the case of insolvencies where the basis of remuneration is not based on time costs, the office holder must give the creditors details of the work they propose to undertake and the expenses which are likely to be incurred. This information must be provided before the creditors determine the basis on which remuneration is to be fixed.

Where remuneration is to be fixed on a time-costs basis, the office holder must, before the creditors determine the basis on which the office holder’s fees are to be fixed, provide a fee estimate and details of the expenses which are likely to be incurred. If it subsequently appears that their remuneration will exceed the total amount set out in the original fee estimate to creditors then approval must be sought from creditors before exceeding the total amount set. In seeking the creditors approval to the increase in the fee estimate, the office holder will be required to give reasons for the increases, details of the additional work, the hourly rate to be charged and the time that the additional work will take, and whether it is anticipated that further increases may be necessary.

The fee estimate must be a written estimate which specifies the details of the work which the office holder and staff propose to undertake, the hourly rate and time that it is anticipated will be incurred, whether it is anticipated that it will be necessary to seek further approval and the reasons why it may be necessary to do so.

It is therefore important to carefully consider the likely work which will need to be undertaken not just by you as office holders but also by your advisors such as solicitors, agents and accountants, who will all also need to provide an estimate if the costs are to be considered expenses of the insolvency estate. It will be particularly difficult in cases where you anticipate investigations against directors, shareholders, or other parties and you do not want to tip them off in the initial report. The wording and the amount of costs to be included in the initial fee estimate will vary from case to case but it will be a fine balance between meeting the new requirements and making sure you do not alert a potential respondent as to investigations and claims against them.

The purpose of the amendments is transparency from the start and, although it will be difficult in many insolvency cases to give an accurate estimate at the beginning of the case when all of the assets, claims or difficulties associated with the insolvency estate will be unknown, it will be imperative to consider the costs and risks associated with seeking further approval of fee estimates at a later stage if the initial estimate is inadequate.

A new SIP9 is also going to be published in line with these changes. It is intended that the new SIP will be issued on or before 1 November 2015 with an effective date of 1 December 2015, at which time the existing SIP9 will be withdrawn. In the interim the current principles of SIP9 should be applied by office holders. There is also assistance for office holders when providing fee estimates in Dear IPs 65 and 68, pending the implementation of the new SIP9.

It is proposed that the new SIP9 will encourage the office holder to provide an explanation for fees with reference to the work to be carried out rather than by reference to fee earners and rates. No doubt the aim is to ensure that creditors do not simply agree to a fee resolution at an initial meeting, but that they have been provided with an explanation of the work to be carried out and the likely costs involved. The aim is to try and ensure that all stakeholders are engaged in the insolvency process. It remains to be seen however whether these changes will result in stakeholders taking a more active part in the insolvency process.

The changes are being introduced by the Insolvency (Amendment) Rules 2015 and will amend the current Insolvency Rules (in particular, Rules 2.47, 2.106, 2.109A, 4.49B, 4.127, 4.131A, 4.131C, 6.78A, 6.138, 6.142A and 13.13).

Should you require any further information regarding these changes please do not hesitate to contact Jo Smith on 0113 3993439 or email her at josmith@hlwkeeblehawson.co.uk or Mara Gosling on 0113 3993431 or email her at maragosling@hlwkeeblehawson.co.uk.

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