The Insolvency Proceedings (Fees) (Amendment) Order 2015

Summary of the Impact Assessment for The Insolvency Proceedings (Fees) (Amendment) Order 2015.

This Law serves as an assessment of the proposed changes to fees within the UK's insolvency framework, specifically concerning bankruptcies and compulsory company liquidations administered by the Official Receiver. The core problem identified is the operational deficit faced by the Insolvency Service's Official Receiver business, primarily caused by a significant and persistent decline in case numbers since 2008. This decline has resulted in a higher proportion of fixed costs per case, leading to income shortfalls despite the Service's cost-reduction efforts. Furthermore, the existing fee structure contravenes the "Managing Public Money" principle by requiring asset-rich cases to cross-subsidise asset-poor cases.

The primary objectives of the proposed amendments are twofold:

1. To eliminate the operational deficit and ensure the Insolvency Service's Official Receiver business operates on a full cost recovery basis, thereby shifting the financial burden from taxpayers to the direct beneficiaries, the creditors.

2. To reduce the level of cross-subsidisation between cases, making the fee structure more aligned with the principle that fees should reflect the cost of the work carried out in each case.

To achieve these objectives, the Impact Assessment proposes one main option: increasing certain insolvency case deposits and administration fees, and adjusting the Secretary of State (SOS) fee bands. This contrasts with a "do nothing" option, which would allow the deficit and non-compliance with funding principles to persist.

The anticipated impacts of the preferred option are detailed:

• Insolvency Service/Taxpayers: An expected increase in income (estimated £1.4m in 2016/17) helps eliminate the deficit, reducing the need for taxpayer funding.

• Creditors: While facing higher upfront costs through increased deposits (e.g., creditor bankruptcy petition deposit rising from £750 to £825, compulsory winding-up deposit from £1,250 to £1,350), creditors are expected to benefit overall from a reduction in the SOS fee (estimated £2m-£3m annual benefit). This adjustment to the SOS fee banding (e.g., reducing the percentage charged on certain asset value bands) aims to return more assets to creditors, particularly those higher up the statutory priority list. The changes also aim to reduce the reliance on asset-rich cases subsidising others.

• Petitioners: Will directly bear the increased costs of initiating proceedings.

• Small and Micro Businesses: As creditors, their impact is expected to be proportional to their size and position in the creditor hierarchy. Insolvency practitioners, many of whom are small businesses, are not anticipated to see significant negative impacts as the changes are not expected to materially affect case volumes.

The proposed changes were intended to take effect from 16 November 2015 and apply only to new cases initiated on or after that date.

Conclusion

Based on the analysis presented in this Impact Assessment, the proposed Insolvency Proceedings (Fees) (Amendment) Order 2015 is posited as a necessary intervention to rectify the financial imbalance within the Insolvency Service's Official Receiver operations and enhance the fairness and transparency of the fee structure. The strategy involves increasing specific upfront costs for petitioners and adjusting fees recovered from asset realisations, with the stated aim of ensuring full cost recovery, reducing taxpayer subsidy, and mitigating cross-subsidisation. While the increases in deposits impose higher initial costs, particularly on petitioners, the overall expected outcome, as assessed by the Service, is a net benefit to the insolvency system by making it more financially self-sustaining and equitable among creditors, particularly through the adjustment of the Secretary of State fee.

This Impact Assessment provides a clear picture of the motivations and expected consequences behind the proposed fee changes in the UK insolvency regime at that time.