There is no one-size-fits-all approach when it comes to insolvency practitioners fees. Fees for a licensed insolvency practitioner (IP) usually fall into either pre-appointment fees or post appointment fees categories.
Insolvency Practitioners must be clear when discussing the cost of their services. Please review the relevant Statement of Insolvency Practice for more information.
Insolvency practitioner fees are put into two distinct categories. Let’s explore each one in detail:
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What Does the Pre-Appointment Fee Cover?
This is generally a one-time payment with Insolvency Practitioners paid by the company director for help with putting the company into an insolvency process. The fee usually covers these main services:
- Providing professional advice on which insolvency pathway to use (e.g., creditors voluntary liquidation, administration etc.)
- Assisting the directors with potential redundancies and threats from business creditors
- Collecting all the relevant information and reviewing the company accounts
- Assisting the directors with the necessary paperwork necessary
- Convening & holding meetings.
- Supplying relevant documentation to Companies House
What Does the Post-Appointment Fee Cover?
The most common methods for calculating the cost of an IP are time costs, fixed fee basis, percentage of realisations or a combination of all three. When proposing one of these methods to a client, justification must be provided in order to adhere to regulations.
In most cases, the post-appointment fee is drawn from money recovered during the process.
Pre-appointment fees only need creditor approval when the fee is being paid using company funds, whereas post-appointment fees always require general body of creditors’ ( except in cases where a third party is paying) approvals.
Now that we have covered the basics of insolvency practitioner fees, let’s move on to how they are dealt with in different circumstances.
Creditors’ Voluntary Liquidation
Insolvency Practitioners Fees Pre-Appointment
The fee for this service is usually fixed fee paid in advance and is typically covered by the director of the company, the company itself, or in some cases a third party interested in purchasing the business and/or company assets.
The pre-appointment fee covers voluntary liquidation costs which are typically the help given to the company directors with placing the company into liquidation. This can include, but is not limited to:
- Assist the directors in preparing the Insolvency Practitioners report which will include the company’s trading history and reasoning for insolvency.
- Assisting the directors develop a statement of affairs to show the company’s current financial standing.
- Assisting the directors by compiling all the legal and statutory documentation required to put the company into liquidation.
Insolvency Practitioners Fees Post-Appointment
This requires a great deal of work to administer. A liquidator is responsible for not only following the relevant legislation, but also the regulations and guidelines set by the Secretary of State and their own licensing body.
Check out our blog to find out more about what an Insolvency Practitioner is and how it differs from a liquidator.
A liquidator’s duties include, but are not limited to, investigating the events that led to the company’s insolvency, investigating the directors’ conduct, liaising with the company’s creditors and employees and selling the company’s assets to enable a distribution to the company’s unsecured creditors’ to be made.
All IPs are required to record all time spent on each case, usually in six-minute units, with a detailed narrative using a time recording system.
An Insolvency practitioner fee estimate must be provided for the creditors’ review. The agreed-upon fee will differ from case to case and can be challenging to predict at first.
Even though the liquidator’s fees are generally estimated using a time cost basis, other bases may be used as mentioned earlier.
If the IP handling a case believes that the original estimated fee is inaccurate, they may request to alter it. However, this will need to seek approval from creditors. If creditors do not approve of the requested fees, the only way for the liquidator to move forward is by taking legal action to get required fee approval through a court process.
Members’ Voluntary Liquidation
With a Members Voluntary Liquidation, a flat fee is typically charged to the company for the required liquidation and dissolution process.
The fee is generally agreed with the directors prior to the appointment. The fee covers all the work undertaken by the firm for the entire duration of the work involved. Although this is generally the case, the basis can also be agreed as detailed above.
The fees an insolvency practitioner charges in an administration are usually different from those in voluntary liquidations, as pre-appointment fees normally require approval from creditors since they tend to be settled using post-appointment realisations.
A majority of creditors must approve all fees before they can be drawn. After appointment, the IP will provide creditors with an estimate of the fees in the proposals put forward.
Any future fee requests from us can be submitted to creditor consideration in an additional fee estimate report.
If you have any further questions or are a company director of an insolvent company wishing to discuss the liquidation options for your company, contact us here at Company Doctor today for initial free confidential advice.
We have our own licensed Insolvency Practitioner with decades of experience. Contact us today on 0800 169 1536 or complete the online form and we will call you back at a time to suit you.