Insolvency fees report falls short of radical solutions

Mr Justice Ferris's long-awaited report on insolvency fees has stopped short of imposing radical changes on the insolvency profession.

Judge Ferris was tasked with setting up a working party to look at the issue after mounting public and judicial concern at the level of fees charged in insolvencies – sometimes taking up nearly all the money recovered for creditors.

Judge Ferris has decided not to force liquidators and their lawyers to fix their fees in advance as a percentage of assets recovered.

He has also held back from allowing liquidators' fees to be taxed, except in complex cases and only when liquidators are court-appointed.

But he does recommend that “value achieved” by the liquidators should be rewarded, rather than just the time recorded.

He also calls for the formula which the courts currently use for provisional liquidators to be extended to all liquidations so that universal standards apply.

However, the formula is vaguely worded and complex, stating that the courts should have regard to several factors including time spent, the complexity of the case, the effectiveness of performance and the value and nature of the property dealt with.

Judge Ferris also suggests that conditional fees could be appropriate in certain cases or tasks within cases.

Chris Mallon, of City firm Biddle, said: “Mr Justice Ferris's working party is going the right way, but the question of value in any professional services sector is very hard to quantify.

“However, the report recognises that there are cases where high costs are justified because liquidators have gone out to recover the funds, and also recognises that where risks are taken, the risk-takers should be paid.”

The idea of a success fee on the basis of no win, no fee might work in the smaller, less complex insolvency cases, Mallon added.

The Society of Practitioners of Insolvency (SPI) is in the process of preparing best practice guidelines based on the report, and has also commissioned a pilot study into insolvency practitioners' charge-out rates.

Mark Hyde, a partner at Clifford Chance and president of the Insolvency Lawyers Association, said that the report highlighted that insolvency practitioners would not have to engage in “over-zealous time recording” and that a balance would be kept between time spent and other criteria.