Government insolvency fees overhaul criticised as ‘tax on creditors’

Picture: Dominic Lipinski/PA Wire

Picture: Dominic Lipinski/PA Wire - Credit: PA

A government overhaul of insolvency fees has been criticised by experts within the industry, who warn that the changes could amount to a 'tax on creditors'.

They fear that small companies will bear the brunt, as the assets of failed companies – particularly in low-value cases – are swallowed up by officials' fees before those owed money see a penny.

Among the Insolvency Service's changes is the introduction of a new £6,000 fee in every compulsory liquidation or bankruptcy, even when handled by a private sector insolvency practitioner.

The Insolvency Service says the move will stabilise its income and help bridge the £9m budget shortfall it predicts by 2016/17, because of a fall in the number of cases.

A further fee of 15% of all realisations will apply to official receiver-run cases, with the overall annual cost to creditors of the measures estimated at £8m. It can also choose to handle more cases itself, where previously it only dealt with straightforward cases, or those with no assets to be realised.

Insolvency body R3 has hit out at the plans, with eastern branch chairman Frank Brumby describing them as 'a very bad deal for the UK's creditors'.

'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,' said Mr Brumby, a director at Norwich-based Isadore Goldman.

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Previously, asset-rich cases were charged on a sliding scale up to £80,000, effectively subsidising those with low assets.

The number of bankruptcies and compulsory liquidations nationally has fallen from a high of more than 80,000 in 2009, to fewer than 19,000 last year.

Andrew Kelsall, insolvency partner at Larking Gowen in Norwich, said: 'They are talking about reducing the deficit of £9m, but if the numbers do increase again – and the jury is out after Brexit – they might well find themselves in a profitable situation.

'If there's a smaller asset case, there's a smaller likelihood of getting money back. Somebody's got to pay and in this case the Insolvency Service has decided that it should be creditors.'

Jamie Playford, insolvency practitioner at Leading UK, said a greater workload on already stretched government receivers could mean fewer assets are recovered.

'Fewer resources means fewer investigations means less money back to creditors,' he said.

Nick Howard, head of IP regulation at the Insolvency Service, denied creditors were being disenfranchised by the changes, and said the wishes of creditors 'will always be paramount'.

'The fees charged by official receivers are approved by parliament, and are totally transparent,' he said. 'It remains open to creditors to seek the appointment of an insolvency practitioner whenever they would prefer to do so.'

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