The Insolvency Service has revised fees for bankruptcies and company insolvencies. Whilst the initial fees have increased, the amount recovered from realisation of assets have remained the same and in parts, decreased.
What is insolvency?
Insolvency arises when an individual or company has insufficient assets to cover their liabilities; as well as individuals and companies who are unable to pay their debts on time.
Bankruptcy, on the other hand, is the formal term used for individuals in England Wales who are officially declared insolvent by the court. In Scotland, individuals are ‘sequestrated’ by the court.
The main legislation governing insolvency is The Insolvency Act 1986 and Insolvency Regulations 1986. The Enterprise Act 2002 amended the 1986 Act so that there was a shift from the culture of shutting down companies to saving them, despite their indebtedness.
As a government department, the Insolvency Service is primarily responsible for administering the insolvency of individuals and companies. Until 16 November 2015, the Insolvency Proceedings (Fees) Order 2004 allow the Insolvency Service to charge for the administration process. After 16 November 2015, revisions contained in the Insolvency Proceedings (Fees) (Amendment) Order 2015 (“the 2015 Order”) will apply.
What are the changes and what do they mean?
When a petition for insolvency is presented, the Insolvency Service charge a fee. This fee has been increased by 8%, now costing £1,350. A case administration fee is also charged in every bankruptcy and winding up case, on the making of a bankruptcy or winding up order. This fee has risen by 5% to £2,520.
There is also a Secretary of State fee, where a percentage of assets realised during the insolvency process is charged by the Insolvency Service. This fee is capped at £80,000. There is no charge on the first £2,000 (£2,500 for companies) of assets realised. Under the changes, there is a charge of 75% of the next £1,700 (a decrease from 100%) and 50% of the next £1,500 (a decrease from 75%). The remaining charges on the sliding scale remain the same at 15% of the next £396,000 and 1% of the remaining assets realised.
The Insolvency Service intends for the revised fee structure to ensure that the burden on public funds is decreased and the government’s targets pursuant to their ‘Managing Public Money’ guidelines, are met.
At first glance, although incremental, the increases are unwelcome news for debtors and creditors. Parties to bankruptcy and/or insolvency are, by definition, approaching the Insolvency Service with financial burdens. Paying more to declare oneself bankrupt, or to chase debts, may seem to defeat the purpose of doing so.
Conversely, the decrease in Secretary of State fees are welcome. This may bring hope to those struggling in insolvency to recover more. It may give a better chance of survival. However, this relative recovery is incremental and the excess cash in realised assets may just cover petition and administration fees, so that the changes in the 2015 Order have no real impact. Ultimately, the outcome of these changes will only truly be appreciated depending on the facts of each insolvency matter.