What does an Insolvency Practitioner do?
A licensed Insolvency Practitioner (IP) is a regulated professional who is authorised to handle the legal process of insolvency. They can assess your finances, explain your options and implement formal insolvency procedures to rescue or close your company.
Like any professional service, you do have to pay for the assistance of an Insolvency Practitioner. However, in many cases, that fee is covered by the proceeds from the sale of company assets, which is money that would otherwise be paid to the parties your business owes money to (your creditors). That means the cost won’t usually fall on you directly.
Initial advice from an Insolvency Practitioner is often free
Although you will have to pay a fee to enter into a formal insolvency procedure, some IPs, such as the team at UK Liquidators, provide free initial advice to help you understand your options. That includes an assessment of your company’s financial position and guidance on the most suitable rescue or closure method.
This initial consultation also provides clarity around costs, timelines and outcomes, allowing you to make an informed decision before committing to a formal procedure.
What factors influence how much an Insolvency Practitioner costs?
The procedure you enter into
The cost of an Insolvency Practitioner can vary significantly depending on the help you need. For example, you may want assistance negotiating a Time to Pay Arrangement with HMRC or exploring alternative funding options, in which case, the cost will typically be relatively low. Entering into a formal insolvency procedure, on the other hand, will cost more.
- Members’ Voluntary Liquidation (MVL) - Insolvency Practitioners don’t only deal with insolvent companies. They can also close solvent companies through a Members’ Voluntary Liquidation. Fees typically range from £1,500 to £5,000.
- Creditors’ Voluntary Liquidation (CVL) - Liquidating an insolvent company via a Creditors’ Voluntary Liquidation is generally more time-consuming than an MVL. That’s due to the need for creditor involvement, director conduct investigations and the additional steps required to deal with outstanding debts and claims. Fees usually range from £3,000 to £8,000, depending on complexity and asset values.
- Company Voluntary Arrangement (CVA) - There are two fees involved in this formal debt repayment plan: one for setting it up and another for managing it long term. Small to medium-sized businesses can expect to pay between £2,000 and £10,000 over the lifetime of the CVA, depending on its complexity, the number of creditors and the total value of debt.
- Company Administration - The cost of Administration means it’s usually a better fit for medium-sized or larger companies. The process is intensive, as an Insolvency Practitioner will usually take over the running of the company for at least eight weeks while they put a rescue or restructuring plan in place. You can expect to pay anything from £15,000 for smaller administrations to £50,000 or more for larger, more complex cases.
Company size and complexity
The complexity of a company can impact the cost of an Insolvency Practitioner. A business with multiple creditors, varied assets or a complicated financial structure will typically require more work, leading to higher fees. Even smaller firms can have specialist assets or financial arrangements that increase the cost of insolvency procedures.
The type and number of assets
In liquidation, an important part of the Insolvency Practitioner’s role is to sell the company’s assets to raise funds to distribute to its shareholders (if it’s solvent) or to pay its creditors (if it’s insolvent). If there are numerous assets, such as property, equipment, stock and intellectual property, or the assets are specialist and more difficult to sell, it will be reflected in the Insolvency Practitioner’s fee.
Experience, reputation and geographic location
The cost of an Insolvency Practitioner can also be influenced by their reputation and where they are based. IPs with significant experience or who operate in larger cities often charge more, but that doesn’t necessarily lead to a better service.
How do Insolvency Practitioners charge for their work?
Insolvency Practitioners can calculate their costs in several ways:
- Fixed fee arrangements - In some simple insolvency cases, such as straightforward voluntary liquidations and the set-up phase of standard Company Voluntary Arrangements (CVAs), it is common for IPs to agree a fixed fee for their work before it commences. That provides certainty and predictability, and is often beneficial for smaller companies.
- Time-cost basis - In more complex cases, such as Administration or larger Creditors’ Voluntary Liquidations (CVLs), IPs typically charge based on the time they spend on the case. Hourly rates usually range from £100 to £300, depending on the IP's experience and location. IPs must provide comprehensive fee estimates before they start work, but there can still be an element of uncertainty.
- Percentage of realisations - In some company liquidations, practitioners may apply a fee structure based on a percentage of the funds they recover from the sale of assets. That incentivises them to maximise the return for creditors or shareholders. Typical fees range from 3% to 10% of the proceeds, although that can increase when specialist assets are involved.
As a company director, you should request a full breakdown of the IP’s fee and details of any other costs before you make an appointment. Other costs include things like agent’s fees for selling assets, advertising costs for liquidation (known as disbursements) and storage costs.
Who pays for an Insolvency Practitioner?
Many company directors assume that an Insolvency Practitioner’s fee will have to come out of their own pocket, but that’s not usually the case.
Company Voluntary Arrangement
In a Company Voluntary Arrangement (CVA), the Insolvency Practitioner charges two fees: a nominee’s fee for preparing the proposal and a supervisor’s fee for managing the arrangement once it is approved.
The nominee’s fee is usually taken from the early months of CVA contributions rather than paid upfront, although in some cases it may be settled before the CVA begins. Supervisor’s fees are typically charged as a percentage of the monthly payments or as an agreed fixed amount.
All fees are paid from the company’s contributions to the CVA. That means they come from funds that would otherwise be distributed to creditors and do not require personal payments from the directors.
Voluntary liquidation
In liquidation, the Insolvency Practitioner is paid using the proceeds from the sale of company assets.
- In a solvent liquidation (MVL), the IP’s fees and any statutory costs are deducted before the remaining profit is paid to the shareholders.
- In an insolvent liquidation (CVL), the cost of the insolvency, including the IP’s fees, are paid before any money is distributed to the creditors.
In most cases, the proceeds from the sale of assets are sufficient to cover the practitioner’s fees. However, if there is a shortfall, the directors may be asked to contribute.
It’s worth noting that as a director of a company in insolvent liquidation, you may be eligible for director’s redundancy pay. With average payouts around £10,000, this is usually more than enough to cover the cost of the Insolvency Practitioner.
Who approves the Insolvency Practitioner’s fee?
According to professional guidelines, IPs must provide detailed fee estimates and obtain appropriate approvals before they start work.
As a company director, you should obtain multiple quotes before appointing an IP. In the case of a solvent liquidation, the more you pay in fees, the less profit there is to distribute among the shareholders, so it’s in your interests that the cost of the IP is as competitive as possible.
In a CVA, insolvent liquidation or Administration, it is the creditors who have ultimate oversight of the IP’s fees. The IP must provide them with a detailed fee proposal. They can then vote on whether to challenge the fees or appoint an alternative Insolvency Practitioner.
Need advice?
Appointing an Insolvency Practitioner is never an easy decision, particularly when your company is struggling. At UK Liquidators, we provide a free initial assessment of your business and its finances, explain your options and recommend the most appropriate route forward. We then provide a complete breakdown of our fees so you know exactly how much an Insolvency Practitioner will cost before you proceed.
It’s this clear, straightforward approach that has made us the largest company liquidation firm in the UK. Please get in touch for a free consultation or arrange a meeting at one of our 134 offices throughout the UK.
