Government insolvency fees overhaul criticised as ‘tax on creditors’

A government overhaul of insolvency fees has been criticised by experts within the industry, who warn that the changes could amount to a “tax on creditors”.

They fear that small companies will bear the brunt, as the assets of failed companies – particularly in low-value cases – are swallowed up by officials’ fees before those owed money see a penny.

Among the Insolvency Service’s changes is the introduction of a new £6,000 fee in every compulsory liquidation or bankruptcy, even when handled by a private sector insolvency practitioner.

The Insolvency Service says the move will stabilise its income and help bridge the £9m budget shortfall it predicts by 2016/17, because of a fall in the number of cases.

A further fee of 15% of all realisations will apply to official receiver-run cases, with the overall annual cost to creditors of the measures estimated at £8m. It can also choose to handle more cases itself, where previously it only dealt with straightforward cases, or those with no assets to be realised.

Insolvency body R3 has hit out at the plans, with eastern branch chairman Frank Brumby describing them as “a very bad deal for the UK’s creditors”.

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.

Previously, asset-rich cases were charged on a sliding scale up to £80,000, effectively subsidising those with low assets.

The number of bankruptcies and compulsory liquidations nationally has fallen from a high of more than 80,000 in 2009, to fewer than 19,000 last year.

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