“The government should be making it easier for people to resolve unsustainable debts, not harder…”
R3 responds as government hits creditors with £8 million insolvency fees hike
New and increased government insolvency fees introduced today (Thursday, 21 July) will hurt creditors of insolvent companies, as well as individuals, and undermine the UK insolvency regime, the insolvency and restructuring trade body R3 has warned.
Among other new fees, the government is introducing a fee of £6,000 in every compulsory liquidation or bankruptcy, even when the case is handled by a private sector insolvency practitioner rather than the government’s Official Receiver.
A further fee of 15% of all realisations will apply in all Official Receiver-run cases.
Acccording to R3, the government estimates the new fees will cost creditors nearly £8 million per year.
The government, which automatically handles compulsory liquidations and bankruptcies in the first instance, has also changed its guidance on passing insolvency cases to licensed insolvency practitioners.
Traditionally, the Official Receiver has only kept cases which are straight-forward or do not have any assets to be realised.
The change will allow the government to hold onto more cases, even when a majority of creditors seek an insolvency practitioner appointment, says R3.
R3 claims that, unlike insolvency practitioners, the government’s Official Receivers are not overseen by an independent regulator and they do not have their fees approved by creditors.
It says Official Receivers do not need to meet the same level of qualifications or standards as insolvency practitioners.
Andrew Tate, R3 president, said: “The government’s new insolvency fees are a very bad deal for the UK’s creditors.”
“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.
“By threatening creditor returns, the government could undermine the UK’s World Bank insolvency ranking.
“Improving this ranking was one of the government’s manifesto commitments.
“The government is putting creditors at risk of seeing fewer returns, and is asking them to pay more for the pleasure.
“The additional £6,000 charge for every case, even on the simplest case where the government does nothing, is essentially a tax on creditors who have already lost money.
“Fees are a necessity in insolvency work. Without them, money would not be returned to creditors in an orderly and fair fashion after an insolvency.
“However, the ability to charge fees should come with responsibilities.”
“Insolvency practitioners’ fees are approved by creditors and insolvency practitioners are heavily regulated.
“The fees regime for insolvency practitioners was further improved recently to allow even more creditor oversight.
“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.”
Cost of becoming bankrupt increases – three months after a decrease
Existing fees have also been increased by the government today, says R3.
Changes include a £25 increase in the cost to an individual applying for bankruptcy contradicting the government’s aim to improve access to debt solutions.
Tate said: “When people are in financial distress, it’s important that they can access a debt solution appropriate to their needs.
“It has long concerned us that entering bankruptcy is only possible with the payment of high, up-front government and court fees.
“Just three months after trumpeting a cut in these costs, the government has increased them again.
“The government should be making it easier for people to resolve unsustainable debts, not harder.”
Before April 2016, people had to pay £705 in government and court fees before they could enter bankruptcy.
From April, online applications became available at a reduced fee of £655. Now, three months later, the cost of online applications has been increased again to £680.