New government fees will potentially undermine insolvency regime, R3 warns

New and increased government insolvency fees introduced in July look certain to undermine the current UK insolvency regime. R3 has warned that this may cost creditors 8million pounds per year. The insolvency trade body has warned that by threating creditor returns the government could undermine the UK’s World Bank insolvency rankings. Leading insolvency firm MGJL have stated that the changes could have a negative effect on insolvency firms across the UK.

“Improving this ranking was one of the government’s manifesto commitments,” said Andrew Tate, R3 president. “The government’s new insolvency fees are a very bad deal for the UK’s creditors.”

Additionally, the government is introducing a few of £6,000 for every compulsory liquidation or bankruptcy. This charge will even apply when the insolvency is handled by a private sector insolvency practitioner rather than the government’s official receiver. Therefore, a further fee of 15% of all realisations will apply in all official receiver run cases.

As well as changes in fees, the government has also issued a change of process when dealing with insolvencies and bankruptcies. Normally the official receiver has only kept cases with straight forward or non-asset cases. The change will allow for the government to hold on to more cases even when a majority of creditors seek and insolvency practitioner appointment.

This can become an issue as unlike insolvency practitioners, the government’s official receivers are not overseen by an independent regulator and therefore do not have their fees approved by creditors. This is also an issue as official receivers do not need to meet the same level of qualifications or standards as insolvency practitioners.

“The insolvency profession understands the government needs money to fund its official receivers. But disenfranchising creditors, holding onto cases its staff may not be qualified to handle, and forcing creditors to pay new, uncompetitive fees undermines the insolvency regime and will mean fewer returns,” said Tate.

“The government has introduced new fees without warning or consultation and is not working to the same standards as insolvency practitioners and is not treating creditors fairly.”

These fundamental changes for the insolvency industry can have a potential knock on effect for insolvency firms as well as those in financial distress. Tate argues that people in financial distress need to access a debt solution which is appropriate for their needs. He suggests that the government should be making it easier for people to resolved unsustainable debts, not harder.

Before April 2016, those seeking insolvency were paying £705 in government and court fees before entering bankruptcy. From April the fees became available at a reduced fee of £655, however three months later the cost of online applications has increased again to £680.