Information to assist creditors regarding fee estimates
The Insolvency Rules 1986 (as amended), and best practice guidance, require Insolvency Practitioners to provide creditors with an estimate of their fees prior to seeking approval of the basis of their remuneration where they are proposing to be remunerated on a time costs basis.
It is difficult to estimate accurately how much time will be spent dealing with a particular case. This is especially so where approval for the basis of remuneration is sought early on in the matter and at a time when the Insolvency Practitioner has limited information about the insolvent entity itself, the creditors and any possible claims that s/he may be able to bring.
Generally the Insolvency Practitioner will ask creditors to determine the basis of his/her remuneration at an early stage so that all parties know how the Practitioner is to be paid. In order to save costs, this is usually dealt with at the same time as other matters upon which the Insolvency Practitioner requires a decision from creditors.
Our estimates are based upon historical data from similar cases that our Insolvency Practitioners have worked on. Although this is likely to give a more accurate idea of the potential costs of the matter, as no two cases are the same it can be only an estimate. Once it is approved by creditors the estimate acts as a cap and if it is exceeded, or we anticipate that it will be exceeded, we are required to seek further approval from creditors.
In order to prepare the estimate we use information provided by the insolvent entity at the outset of the case. In cases where this information proves to be inaccurate, the estimate will not be accurate and we may need to revert to creditors for approval of a further estimate.
We anticipate that the factors likely to have the most impact upon the fees estimate are:
- The involvement of creditors in the process and the agreement of creditor claims. It is hoped that the estimate takes this into account sufficiently but, as stated above, because no two cases are the same inevitably there will be some variation in this respect.
- Possible claims that the Insolvency Practitioner may be able to bring. This will only be known following the completion of some initial investigations. As a result, this is one of the most difficult areas to estimate.
- The assets of an insolvent entity are different in every case and so the costs of realisation are very difficult to estimate as there may be issues with the assets which were not anticipated at the outset.
- As it is not usual for there to be a creditors’ committee or for the Insolvency Practitioner to trade on the business of the insolvent entity there is limited historical data in this respect. In particular the costs of trading are very difficult to estimate. Where any such costs appear in the estimate they are the Practitioner’s best estimate of the likely costs.
- By their very nature, unforeseen circumstances cannot be factored into a fees estimate. Where it is anticipated that the fees estimate will be exceeded due to unforeseen circumstances we will revert to creditors for approval of a further estimate.
- The estimate is based upon the current charge out rates of the Insolvency Practitioner’s firm. Creditors will note that these are reviewed periodically. The estimate does not take account of any increase in rates that may apply following a review. In addition, it does not take account of staff promotions or changes to the Insolvency Practitioner’s team.
Version 1: October 2015