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Insolvency Law

Expert guidance on all aspects of corporate and personal insolvency

11 MAR 2009

McFadden in defence of Officeholder remuneration - some Hansard discussion

In a recent blog post I critiqued a letter that Mr Pat McFadden MP (minister at BERR with responsibility for the Insolvency Service) had written to Insolvency Practitioners (IPs) on the 4 March 2009 regarding their responsibilities towards employees. Mr McFadden has also recently been active in the House of Commons in relation to IPs. On the 9 March 2009 Mr McFadden spoke out in defence of IP remuneration, a topic I have addressed elsewhere. The exchange between Mr McFadden and Gordon Banks MP went  as follows:

"Gordon Banks: To ask the Minister of State, Department for Business, Enterprise and Regulatory Reform if he will bring forward proposals to (a) set a maximum limit on and (b) reduce the fees of administrators and receivers relating to winding up of business failures.

Mr. McFadden [holding answer 5 March 2009]: The fees charged by an insolvency practitioner reflect the necessary level of specialist knowledge that the insolvency practitioner has to have to be able to take effective action in a wide range of unusual and complex situations. This expertise takes time and training to acquire. The Insolvency Rules 1986 determine how the remuneration of an office holder (liquidator/administrator/trustee etc.) is to be fixed and provide that such remuneration shall be fixed by reference to the time properly given to the administration, or as a percentage of the assets which are realised and distributed. In most insolvency cases it is for the liquidation or creditors’ committee to determine the basis for fixing the remuneration or, in the absence of such a committee, the creditors decide the matter. The Rules also make provision for the court to review the amount of remuneration charged. Statement of Insolvency Practice 9 provides regulatory guidance which insolvency practitioners must follow when seeking approval for their fees. Matters to be considered by the approving body (usually the creditors) include the effectiveness with which the insolvency practitioner has carried out his duties and the value and nature of the assets with which he has had to deal. In October 2004 the court issued a practice statement which provides guidance on matters that will be taken into account when the court is dealing with an application for review of remuneration. As the amount of remuneration is subject to review by the court my noble Friend the Secretary of State has no powers to investigate the amount of remuneration charged. I would therefore confirm that I have no plans to bring forward plans to limit or reduce the fees charged by insolvency practitioners, which are properly a matter for the creditors or the court."

A more specific exchange then followed:

"Mike Penning: To ask the Minister of State, Department for Business, Enterprise and Regulatory Reform how many businesses have entered into administration in (a) Hemel Hempstead and (b) Hertfordshire in the last 12 months.

Mr. McFadden: There were 4,820 administrations (Enterprise Act 2002) in England and Wales in 2008. Statistics covering business administrations are not currently available on a regional basis within England and Wales."

The Insolvency Service already maintains a very thorough statistics service so this last response comes as some surprise. It is hoped that regional statistics will be forthcoming in due course. In relation to the general response by Mr McFadden regarding IP remuneration this will not come as a surprise as this sometimes controversial area is now well settled in terms of how IP remuneration is calculated. Negative press commentary always follows this sort of discussion and the same is true in relation to this Hansard exchange. It will always appear strange to some commentators that insolvency practice can be profitable. What is perhaps most interesting in relation to the exchange is Mr McFadden's approach to the IP remuneration issue as contrasted to his approach to the IP employee responsibility issue as noted in my previous blog. 

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