Insolvency practitioners collect millions in fees while creditors are often left with pennies. Will the government act?
Cobbetts creditors set to recoup less than 2p in the pound after the firm was controversially pre-packed off to DWF earlier this year face a dispiriting double-whammy. Much of the meat left on the bones of the legacy LLP looks set to be mechanically recovered by administrators KPMG, whose bills take precedence. Here are the Big Four firm’s hourly charge-out rates for handling the insolvency:
Partner - £565
Associate partner - £485
Director - £485
Senior manager - £450
Manager - £365
Senior administrator - £250
Administrator - £185
Support - £115
When Halliwells went down in 2010 BDO – not quite of the Big Four elite but on the next rung down - charged the following:
Senior manager £271-£295
Assistant manager £185
Senior executive £170
Junior executive £124
Support staff/secretary £62
Insolvency is a countercyclical business and its elite practitioners (mostly working in the biggest accountancy firms) do not enjoy a good press at times of economic difficulty. These numbers, baldly stated, help to explain why. Laypersons – unsecured creditors among them – struggle to comprehend what it is that ‘support’ staff do to justify an hourly rate of more than £100. And what explains the differentials? Why is an administrator worth £185 an hour and a senior administrator £250, but not £249 or £251? And what does a director do that justifies £35 more than a senior manager?
Big-ticket corporate insolvency in particular has long been viewed as both uncompetitive and opaque, a state of affairs to which the Department for Business, Innovation and Skills has recently turned its mind. Last December BIS commissioned Professor Elaine Kempson of the University of Bristol to conduct a review of insolvency fees in order to ‘ensure creditors achieve value for money from procedures carried out by IPs’. Professor Kempson reported in July. BIS has yet to respond, but her conclusions at least offer a degree of reputational ballast for heavily criticised (if not impecunious) IPs.
Kempson addressed the headline rate issue partly by declining to address it: ‘Much of the disquiet about the remuneration of IPs focuses on headline [hourly] rates and those of partners and directors in particular,’ she reported. ‘Their levels are not, however, unusual in the accountancy and legal professions to which most IPs belong. As a consequence, headline hourly rates are a much wider issue that it is beyond the scope of this review to investigate.’
More substantively, she said it would be ‘wrong to dwell too long on… headline rates’. In many cases the sums levied are not recovered because realisations ultimately prove insufficient.
There was, however, much else in the professor’s report to ponder, most notably her recommendation for limited competitive tendering, and adopting the Australian approach of providing a costs estimate at the outset of the case with an agreed cap on fees.
The IP community remains apprehensive about the outcome of Kempson. As the specialist blog Insolvency Oracle noted: ‘The fact that this report made fewer ripples than the government’s announcement of its plan to conduct the fees review makes me wonder if anyone is really listening..? However, I’m sure we all know what will happen when the next high-profile case hits the headlines, when the tabloids report the apparent eye-watering sums paid to the IPs and the corresponding meagre pence in the pound return to creditors. Then there will be a revived call for fees to be curbed.’
Paul Rogerson is Gazette editor