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News story: Changes to Official Receiver's Fees

In 2014, The Insolvency Service agreed with Ministers at the Department for Business, Innovation and Skills and with HM Treasury (HMT) that it would carry out a full review of its funding, including that of the Official Receiver Services.

This review has identified that the funding for Official Receivers Services should be more transparent and be compliant with HMT’s Managing Public Money (MPM) guidance. MPM guidance requires fees to be set at a level which aims to achieve full cost recovery and that those fees and charges should be reviewed regularly.

Date of implementation

The petition deposits (the amount that needs to be paid up front to obtain an order) will be increasing in all cases where the petition is lodged with the Adjudicator, or filed at Court on or after the 21 July 2016.

The fee structure will be changing, and existing fees will be increasing for all cases where the bankruptcy order or compulsory winding up order is made on or after the 21 July 2016.

The new fees will only be charged in cases where the order was made on or after the commencement date. Where the bankruptcy order or compulsory winding up order was made prior to this date, the fees will be charged in accordance with the fees order in place at that time.

Detail of the changes to the Official Receiver’s fee structure

A new suite of fees is being introduced which aim to match costs to the activities being carried out. Administration fees and petition deposits will continue to be charged and are reviewed regularly to ensure that they are set at the appropriate level.

New fees include:

the Official Receiver’s general fee a trustee / liquidator fee an Income Payments Order / Agreement set up fee a dismissed / withdrawn petition fee

The Secretary of State fee will no longer be applied to orders made on or after the 21 July 2016.

Rationale for the change

New fees are being introduced, not only to make the Official Receiver’s new fee regime fairer and more transparent, but to provide a stable funding platform for the Insolvency Service; which is able to flex in line with an increase or decrease in case numbers.

Detail of the new fees The Official Receiver’s general fee

This new fee will be a fixed single fee and is being introduced to replace the existing Secretary of State fee in all cases where the order is made on or after 21 July 2016. This means that creditors will know at the start of a case the maximum amount that will be charged for it to be administered. As with the Secretary of State fee it replaces, this fee will go towards meeting all the costs of the Official Receivers’ operations. The existing Secretary of State fee was charged as a percentage of assets realised in a case. The maximum amount charged under the Secretary of State fee per case is £80,000. The new fee will be set at £6,000 and therefore there should be more funds available to return to creditors in cases that have assets.

This fee will be charged to the case upon the making of the bankruptcy or winding up order.

The Trustee / Liquidator fee

This fee will be charged in cases where the Official Receiver acts as Trustee or Liquidator and realises assets in a case. The fee is set at a level to cover the costs of undertaking that work, currently 15% of assets realised. There is no maximum amount that can be charged under this fee.

The Income payments agreement (IPA) / Income payments order (IPO) set up fee

This fee will be charged in all bankruptcy cases where an IPA or IPO is set up. The fee is set at £150 which will cover the specific costs incurred by the Official Receiver of arranging and setting up the IPA / IPO and will be collected from the first payments made by the debtor into the arrangement.

This fee will only be charged once on a case. If a debtor defaults on their payments under an IPA, and the Official Receiver makes application to Court to enforce payments via an IPO, in these circumstances no further fee will be payable.

The Dismissed / Withdrawn petition fee

This £50 fee will be introduced to cover the costs of the Official Receiver’s administration work when issuing a refund to the petitioner whenever the petition is dismissed or withdrawn.

In summary the new fees are as follows:

Name of fee Current fee OR general fee £6,000 Trustee / Liquidator fee 15% of asset value realised by the Official Receiver IPA / IPO set up fee £150 Dismissed / withdrawn petition refund fee £50 Implementation timetable for the new fee structure

Designing and introducing a new fee structure is not an easy task. Before any changes can be made to the fee structure, approval is needed from Ministers and HM Treasury. These agreements have only recently been secured.

Additionally, as the fee structure is changing, a new fees order is required to amend the legislation. This process is more involved than simply amending an existing fees order. Announcements regarding the detail of the changes can only be made once the fees order is laid in Parliament

The intention as with previous changes is to ensure that those who benefit from the insolvency regime should be the ones to pay for it. But at the same time we are required to set our fees to cover our costs. Despite significant reductions in our cost base, we need to increase fees in order to ensure that costs continue to be met. The debtors petition deposit has not increased since 2011

Changes being made to existing fees and deposits

The table below shows the changes to the existing deposits and fees.

Fee Current £ Proposed £ Debtors’ (own) bankruptcy deposit 525 550 Debtor bankruptcy administration fee 1,990 No change Creditors’ bankruptcy deposit petition 825 990 Creditor bankruptcy administration fee 1,990 2,775 Company winding up deposit 1,350 1,600 Company winding up administration fee 2,520 5,000 Public interest Company winding up deposit 5,000 No change Public interest Company winding up administration fee 5,000 7,500 Distribution fee (charged when the Official Receiver acts as trustee or liquidator and pays a dividend to creditors Banded time & rate charge No change The debtors’ (own) bankruptcy deposit

This is an amount payable on presentation of the petition to help pay for the costs of the administration of the case. Only a small proportion of the costs are recovered at the outset of a case from the deposit, which is not sufficient to cover all the costs.

The deposit payable on a debtor’s bankruptcy petition last increased in 2011. As the deposit has not been increased for 5 years, this change amounts to a below-inflation increase.

Assistance where a debtor is unable to pay the deposit

There are a number of remedies for those who find themselves in debt of which bankruptcy is one. Free debt advice is available through government funded agencies such as the Citizens Advice Bureau and there is a wealth of information accessible online to assist those in debt to decide on the most suitable remedy for their situation.

The Government introduced Debt Relief Orders in April 2009 to meet the needs of those overwhelmed by relatively low levels of debt and this is a low cost option (£90). This option was made more accessible to those seeking relief from their debts when the maximum admissible debt threshold was raised from £15,000 to £20,000 in October 2015.

Individual voluntary arrangements (IVAs) are also available to those who can make payments towards their debt.

Where bankruptcy is the most appropriate option it will provide relief from more significant levels of debt. The deposit is the only contribution a debtor needs to make to the cost of administering the bankruptcy process.

There are no provisions to waive the deposit or insolvency fees. However, when debtors petition for their own bankruptcy, they are able to pay the deposit by installments.

From April 2016, the process for an individual to apply for their own bankruptcy has changed. An application is now made to the new Adjudicator’s office, instead of to the Court. The cost of an application to the Adjudicator is £130.

In cases where the individual would previously have had to pay a court fee of £180, after allowing for the Adjudicators fee of £130, the overall cost of debtors petition bankruptcies for those who do not meet the current requirements for remission of court fees, is reduced by £25.

Based on our research we do not expect there to be any significant changes to the number of insolvencies due to the introduction of the new fee structure.

Case numbers are regularly reviewed so that if there are any changes, fee levels can be adjusted so that projected income can be matched with expenditure.

The creditor’s petition deposit

The creditor’s petition deposit last increased in November 2015.

Following the full review of the services provided by official receivers and the costs associated with this work, it has been identified that continuing with the current deposit levels, would mean that the costs of administering cases would not be covered. In making these changes the Minister considered the interests of both debtors and creditors to maintain a fairness between the contribution that each must make to the cost of bankruptcy.

In approximately 50% of cases there are no assets, resulting in the petition deposit being the only recovery made in these cases.

The changes in deposits continue to reflect the current position where the creditor’s deposit is greater than the debtor deposit. This reflects the fact that generally speaking, creditor petition cases cost more to administer, and the, often more vulnerable, nature of debtors pursuing relief through bankruptcy. Where sufficient assets are available the costs of petitioning creditors, including the deposit paid on the petition, will be repaid in part or in full. Also, with the introduction of the new administrative process, debtors’ cases will cost less to administer than creditor petition bankruptcies.

The administration fee

The administration fee reflects the average cost of administering a case. It is recovered from the realisation of assets and creditors do not have to pay this money upfront. It is only collected once assets are realised.

The distribution fee

The distribution fee is charged when the Official Receiver, acting as trustee or liquidator, realises sufficient assets in a case to enable a distribution to creditors. It is charged on a time and rate basis. This is an existing fee and is not changing at this time. The work of distributing funds is not covered by the trustee / liquidator fee or the administration fee. The authority to charge this time and rate fee is contained within the Insolvency Regulations 1994, and so is not covered in the Insolvency Proceedings (Fees) Order 2016.

Funding of the insolvency regime

The fee structure is set up so those who benefit from the insolvency regime pay for it. In setting the fees, the aim is to ensure that a balance is found between the interests of both debtors and creditors.

Government policy is that the people who benefit from the insolvency regime should pay for it. The alternative would be for the taxpaying general public to bear the cost.

The Insolvency Service must set its fees at a level that will ensure that its costs are recovered. Fees are recovered from various sources; the deposit is paid up front by the petitioner. The deposit is only a payment towards part of the overall cost and is the only certain recovery of the fee in any case. The administration fee and Official Receiver’s general fee will be payable out of any assets realised in a case. In addition, further costs will be recovered from fees charged for the work undertaken when acting as trustee/liquidator, for setting up an IPA or IPO and also for the work involved in dealing with dismissed petitions.

Returning the deposit to petitioning creditors

If sufficient assets are realised to enable a distribution to creditors, the deposit will be repaid to the petitioner first, before anyone else is paid. Where assets are realised, creditors will gain from the new general fee as this is fixed at £6,000 whereas the SoS fee that it replaces was charged on a sliding scale and capped at the much greater level of £80,000.

Future fee levels

In accordance with HM Treasury’s Managing Public Money principles, the Insolvency Service is required to carry out regular reviews of the charging levels for its fee funded businesses and we will continue to do so.

Impact of the new fee structure for insolvency practitioners

The payment mechanism is not changing, as all fees will be charged to the case, in the same manner as they are now.

Impact of the new fee structure for creditors

It is important to maintain a balance between debtors and creditors in any insolvency regime.

We have taken steps in the past to improve the position of creditors by removing preferential creditor status from government departments, thus ensuring that unsecured creditors get a better return.

In bankruptcy cases, we also ensure, through income payment agreements, that those who can afford to pay something towards their debts do so

More recently, new powers were introduced in 2015 to enable the Secretary of State to seek a Compensation Order against a disqualified director where their misconduct has caused specific loss to one or more creditors.

Collection of fees

In debtor petition cases, deposits are payable via the Adjudicator, and for creditors petitions and compulsory liquidations deposits are payable via the court on presentation of the petition.

The case administration fee and Official Receiver’s general fee are collected out of the realisation of assets.

The IPA / IPO set up fee will be taken from the first payments into an IPA or IPO.

The dismissed / withdrawn petition fee will be deducted from the petition deposit before it is refunded.

Legislative changes to implement the new Official Receiver’s fee structure

The Insolvency Proceedings (Fees) Order 2016 which comes into force on 21 July 2016 replaces the Insolvency Proceedings (Fees) Order 2004. The Order increases the deposit payable on presentation of a petition to the court for the winding up of a company and on presentation of a petition by a creditor or debtor for bankruptcy and increases the Official Receiver’s administration fee payable on winding up and payable on bankruptcy. The Order also introduces the new fees (the Official Receiver’s general fee, trustee / liquidator fee, dismissed petition fee and IPA / IPO set up fee).

https://www.gov.uk/government/news/changes-to-official-receivers-fees

seen at 14:30, 1 July in Announcements on GOV.UK.
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