Proposals to stop insolvency practitioners charging by the hour will lead to ‘micro-managing’ and create a ‘prescriptive regime’, the Law Society has warned.

The plans form part of a package of measures announced last month by the Insolvency Service, the oversight regulator, to increase efficiency in the sector.

Introducing a consultation on the issue, consumer affairs minister Jenny Willott said the general conduct of practitioners and the fees they charge should come under ‘close scrutiny’ to give creditors confidence they will recover the maximum possible amount.

The Law Society, one of eight ‘authorising and regulating bodies’, today responded to the consultation and warned the changes could force practitioners out of the market.

‘It needs to be recognised that the outcome of insolvency proceedings can be uncertain, that there is a certain basic amount of work to be done [which] may, on occasion appear disproportionate to the amount recovered,’ said the Society. 

‘The concept of “value for money” will be very difficult to achieve and may mean that a number of practitioners may feel this market is no longer relevant for them.’

The Society response accepts the need for transparency over fees and mechanisms for preventing over-charging.

But rather than question fees after the event and encourage complaints, the Society suggests requirements to keep creditors informed of progress and costs and monitoring to avoid over-charging.

‘It will place an entirely inappropriate burden on practitioners who may undertake reasonable work in good faith only for it to be questioned after the event,’ the Society response adds. ‘We are unaware of any business that has its fees checked on this basis after the event.’

The Law Society also opposes plans for the Insolvency Service to be given power to revoke the recognition of a regulator or impose a financial penalty if it fails to comply with regulatory objectives.

The consultation closes today.