How much does an Insolvency Practitioner cost?

What is an Insolvency Practitioner? 

An Insolvency Practitioner is a licensed professional who is authorised to act on behalf of insolvent businesses and individuals. They must be licensed by one of five recognised professional bodies in the UK and adhere to the legal framework set out in the Insolvency Act 1986 and Insolvency Rules 2016.

Insolvency Practitioners have a varied role. They can act as advisors or implement insolvency procedures to rescue or close limited companies. They can also liquidate solvent companies via a Members' Voluntary Liquidation (MVL) to enable the directors to extract the profits in a tax-efficient way.

Insolvency Practitioners fulfil a number of roles including: 

• Liquidator - closing down both solvent and insolvent companies which are no longer wanted
• Administrators – working to rescue or restructure financially distressed companies
• Nominees and Supervisors – setting up and overseeing Company Voluntary Arrangements (CVAs)
• Trustees in Bankruptcy – managing the assets of individuals who are declared bankrupt

Understanding Insolvency Practitioners’ fees

Most licensed Insolvency Practitioners provide initial insolvency advice for free. However, when you appoint an insolvency practitioner to act on your behalf, they will charge a fee for their work. They must provide a clear breakdown of their proposed fees and how they will be charged, and obtain the relevant approval before they start.

Exactly how an Insolvency Practitioner determines their fee depends on the particular IP and the nature of the work. The costs for liquidation, will be different to those charged for a complex company administration process.

Time-cost basis

Insolvency Practitioners often charge by the hour based on the time they spend on the various activities involved in a particular appointment. Hourly rates vary depending on the complexity of the case and the seniority of the insolvency practitioner involved. The location can also play a part, with insolvency practitioners in London typically charging more than those in other parts of the country. 

When using a time-based approach, insolvency practitioners must provide detailed estimates based on the hourly rates of different staff grades and the expected time they will spend on the case. 

Fixed-fee arrangements

Many company directors prefer to appoint Insolvency Practitioners on a fixed-fee basis. That helps with financial planning by providing certainty and transparency around exactly how much a procedure will cost. 

Fixed-fee arrangements are common when dealing with more straightforward appointments, such as standard Company Voluntary Arrangements and voluntary solvent and insolvent liquidations.

Percentage of realisations

In some cases, particularly those involving specialist assets that may take more time to realise or complex recovery situations, Insolvency Practitioners may calculate their fee based on the value of the assets they sell. This approach can help to maximise the return for creditors, as the IP’s remuneration is directly tied to the money they recover.

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How much does an Insolvency Practitioner cost?

The cost of an Insolvency Practitioner can vary considerably depending on the nature of the work, the location and the experience and expertise of the particular IP. However, we can provide the following as a rough guide to our costs at Real Business Rescue.

• Members’ Voluntary Liquidation (MVL) - A Members’ Voluntary Liquidation is the tax-efficient closure of a solvent limited company. We typically charge between £3,500 and £5,000, depending on the complexity of the case. Companies that pay the lowest fees have few liabilities or assets to realise.
• Creditors’ Voluntary Liquidation (CVL) - Creditors’ Voluntary Liquidations are more complex, requiring additional documentation and greater creditor involvement. That’s reflected in costs that start at around £4,000 and rise to £6,000 or more. The exact figure will depend on the value and complexity of the assets and the number of creditor claims.
• Company Voluntary Arrangements (CVA) - Fees for preparing the proposal, consulting with creditors and implementing a Company Voluntary Arrangement start at around £1,500 for simple, small-scale CVAs. Once the CVA is approved, the supervising practitioner usually charges a fee of 10 to 15% of the funds paid to creditors for managing and administering the ongoing arrangement.
• Administration - The cost of an Insolvency Practitioner in Administration is usually based on the time spent on the job. Every Administration is different, with the price determined by the time it takes to formulate a plan, realise assets and complete any remaining work to maximise the return for creditors.

You can expect fees starting at around £10,000 and rising considerably for cases with complex business structures, extensive asset sales or extended administration periods. 

Who pays the Insolvency Practitioner’s fee?

The company that appoints the Insolvency Practitioner pays their fee, either from its profits or its available assets. In the case of a solvent liquidation (Members’ Voluntary Liquidation), the process is straightforward, as the IP is paid using company funds. This is usually agreed in advance, often as a fixed fee.

However, it’s not always so straightforward. In an insolvent liquidation (Creditors’ Voluntary Liquidation), the Insolvency Practitioner’s fees are paid from the sale of assets. There is a strict repayment hierarchy that determines the order that liquidation costs and creditors are paid. The Insolvency Practitioner’s fee is paid after secured creditors with a fixed charge over a specific asset, but before preferential and unsecured creditors.

In some instances, the value of the company’s assets is not sufficient to cover the IP’s fee. In that case, a company director may choose to pay their fees using their personal funds.

However, it’s worth noting that the directors of companies in insolvent liquidation may be eligible to claim director’s redundancy pay. With average claims in the UK of around £10,000, this redundancy payment can cover the cost of the Insolvency Practitioner’s fee if the directors personally fund it first.

Who has oversight of an Insolvency Practitioner’s fee?

If the company is insolvent, it is the creditors who ultimately have oversight of the IP’s fees. The more the IP charges, the smaller the pot is for the company’s creditors. 

That’s why, in procedures including Company Voluntary Arrangements, Creditors’ Voluntary Liquidations and Administration, the IP must provide creditors with a detailed fee proposal, and the creditors can vote on it and challenge any fees they believe to be excessive. They can also propose an alternative IP if they think they will provide better value.

As a company director, if you initiate a solvent liquidation, it is your job to review the IP’s fee. They are paid from money that would otherwise be paid to the shareholders, so it’s in your interest to appoint an IP that provides good value for money.

Are you ready to appoint an Insolvency Practitioner?

Appointing an Insolvency Practitioner can be a difficult decision for a company director, particularly if your company is struggling financially.

At Real Business Rescue, we provide initial advice for free, including an assessment of your company, an explanation of your options and guidance on whether an insolvency procedure is the most appropriate route forward. We also provide a full breakdown of our costs, so you can make an informed decision about whether to proceed with complete transparency.

Please get in touch for a free consultation or arrange a meeting at one of our local offices throughout the UK to discuss your circumstances in person.