Shock horror – insolvent people don’t have many assets

Last week (Friday 27 October) the Insolvency Service published a series of tables showing the percentage of cases in which the assets in bankruptcy and compulsory liquidations were sufficient to cover the statutory fees charged against the cases.  Anyone want to take a guess before you read on?  5%?  10%?

Firstly, let us remind you of the fees which are levied against the cases, which are all outlined in The Insolvency Proceedings (Fees) Order 2016, which if you are a JIEB student should be nicely tabbed up in your Butterworths.   In Bankruptcy cases, the administration fee is £1,990 where the debtor makes an online application for their own Bankruptcy, rising to £2,775 in cases where the creditor presents a petition.  In Compulsory Liquidations, the administration fee is £5,000 in all cases other than those where the petition is made under Section 124A (which covers petitions to wind up made in the public interest).  The Official Receiver’s general fee of £6,000 is charged in all cases.

The Insolvency Service press release confirms these fees are charged to cover the work of the Insolvency Service and on this occasion the newsroom is going to steer clear of the argument about whether IPs acting as (say) a CVL Liquidator should have similar rights to non-creditor ratified fees.  The press release continues in logic which may make your head hurt by saying “asset recoveries are uncertain and, in many cases, insufficient to cover the administration fee. Therefore, to cover this shortfall, an additional fee called the Official Receiver’s General Fee is charged in all cases.”  So to cover a loss a bigger loss is made!  Of course, the Insolvency Service use other cases to balance the books – again, wouldn’t that be nice?

Now, before we take a look at the numbers the Insolvency Service would like you to bear in mind the following:

·        These numbers do include cases where the bankruptcy has been annulled on the grounds of creditors being paid in full.

·        The data (which was extracted in February 2023) was live at that stage so some open cases may have future assets to realise which will affect the numbers.

·        Bankruptcies prior to the PPI deadline of August 2019 will have comparatively higher realisations than cases after that date. 

In the financial year 2017/18, 38% of debtor application Bankruptcies had no assets, with a further 57% of cases able to pay some of the fees.  Only 6% of cases had asset realisations higher than the fees of £6,990 (and bear in mind the deposit of £550 goes some way to reducing this debit balance).  By 2021/22 the percentage of no asset cases had risen to 57% and only 3% of cases had covered the fees in full.

Turning to Bankruptcy cases initiated by a creditor petition, the no asset cases were 36% in 2017/18, rising to 61% in 2021/22.  However, the cases where the fees were paid in full was higher with 27% and 11% respectively.  It would appear therefore some (but not all) creditors are presenting petitions where they are aware of assets to enable a recovery.

In Compulsory Liquidation cases, in 2017/18 67% of cases had no assets and only 9% had assets sufficient to pay the fees in full.  By 2021/22, these numbers stood at 77% and 7% respectively.

These numbers perhaps show the reasons why the deposits for creditor petitions rose in November 2022 although these cases will be reflected in future releases of this data.

As a reminder to all of our students about to sit their exams, this is the reason why Neil refers to issuing a petition as the Great Yarmouth option (the last resort).  The likelihood of the case having enough money to pay the statutory fees is small and therefore the extra costs of the petition are unlikely to be recovered.  We haven’t even got to the original debt.  So what should a creditor do, unless they are certain there are assets?  Litigating and executing looks a much better bet.