Government proposals to ban insolvency practitioners (IP) from charging on a per-hour basis could hurt creditors, according to trade body R3.
Under government plans, IPs will only be able to charge a fixed fee or take a percentage of the assets they realise in cases where there are no engaged secured creditors or creditor committees. Charging on a per-hour basis in such cases would be prohibited.
The consultation on the plans closes today.
Graham Rumney, chief executive of R3, a trade body that claims to represent 97 per cent of the UK's IPs, said the proposals fly in the face of evidence-based policy making.
"The proposals will make it uneconomical for smaller firms to handle smaller cases," he said.
"It is possible that many would drop out of the market. Creditors will suffer because these cases will end up with the government's Official Receivers, who do not have the same qualifications, experience and expertise as insolvency practitioners."
Rumney said that two government reviews found that the existing fee-setting process worked well in instances where creditors were engaged in an insolvency process.
Some 77 per cent of R3's members said enforcing the use of fixed fees would lead IPs to take on fewer cases, R3 claimed. Some 40 per cent said this would hurt returns to creditors, with only 11 per cent thinking returns would improve.
"Relying purely on fixed-fees and fees as a percentage of realisations is a completely arbitrary way of setting fees," Rumney said. "Creditors will end up over-paying just as often as insolvency practitioners end up under-paid; charging fees as a percentage of realisations fell out of favour in the 1980s for this very reason."
However Nitin Joshi, director of Channelmoney, said there was "room for debate" over fee structures given that habitual trade creditors have received little or nothing out of insolvencies over the past 30 years.
Allowing IPs to charge on an hourly basis can be like handing out a blank cheque for what can sometimes be straightforward clerical jobs, he said
"Trade creditors want greater scrutiny and accountability over fees," he said. "Many believe IPs should be paid on a fixed-cost rather than time-cost basis as over 30 years they've received nothing, or next to nothing."
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