Tom D'Arcy

Changes to the Insolvency Service fees 2016

In conjunction with HM Treasury, the Insolvency Service has imposed a new fee structure for bankruptcies and compulsory liquidations which come into force on 21 July 2016. The objective behind the new fee structure is for the Insolvency Service to achieve full cost recovery. The Government estimates that the new fees will cost the creditor community an additional £8m per annum.

The fee changes comprise of the following:

In bankruptcy, following a petition from a creditor, the deposit required to be paid by the petitioning creditor increases by £165 to £990. The Official Receiver’s administration fee increases by £785 to £2,775.

In compulsory liquidation, the deposit has increased by £250 to £1,600 and the administration fee has increased by £2,480 to £5,000.

In addition, under the previous fee structure the Insolvency Service would charge a Secretary of State fee as follows:

Compulsory liquidation

Bankruptcy

0% of the first £2,500 realised

0% of the first £2,000 realised

100% of the next £1,700 realised

100% of the next £1,700 realised

75% of the next £1,500 realised

75% of the next £1,500 realised

15% of the next £396,000 realised

15% of the next £396,000 realised

1% of all further sums subject to a maximum fee of £80,000

1% of all further sums subject to a maximum fee of £80,000

Under the new fee structure, the Secretary of State fee has been replaced by a fixed fee of £6,000 in all cases. Effectively, the Insolvency Service receives the same fee whether the case is simple with minimal assets or is a complex case with high-value assets. It seems therefore that creditors look set to benefit from lower statutory fees in high-value cases, but will suffer in cases with minimal assets.

Under the previous fee structure, where the Official Receiver acted as Liquidator or Trustee, fees would be charged pursuant to the Official Receiver’s scale as a percentage of realisations and distributions made as follows:

Realisations

Distributions

20% of the first £5,000 realised

10% of the first £5,000 distributed

15% of the next £5,000 realised

7.5% of the next £5,000 distributed

10% of the next £90,000 realised

5% of the next £90,000 distributed

5% on all further sums realised

2.5% on all further sums distributed

Under the new fee structure a fixed percentage of 15% on all realisations will be charged. In our experience, the majority of insolvencies will have assets of less than £100,000 and accordingly the Insolvency Service will receive more fees than previously, further penalising the creditors.

What are the implications of the new fee structure?

Firstly, the new fees create increased costs for any creditor wishing to issue bankruptcy or winding up proceedings to recover monies owing. In addition as a consequence of the administration fee and the new fixed fee, the first £7,785 in bankruptcy and £9,400 in compulsory liquidation will be lost in fees. Will this lead to fewer bankruptcies and winding up petitions being presented? Perhaps not in the majority of cases but the new fees are certainly another barrier for creditors.

Second, whilst the Insolvency Service is likely to lose out in high-value cases, the new fee structure reflects the changing insolvency market in the UK. Whilst the number of insolvencies has continued to fall, the number of simple, low-value bankruptcies and compulsory liquidations (of which a majority are dealt with in-house by the Official Receiver) has increased as a percentage of the total.

Accordingly, the gift of lower statutory fees in increasing smaller number of high-value cases is easily offset by the increase in fees in simple, low-value insolvencies which from our own experience seem to be increasingly the norm.