Hello and welcome back for the second of our weekly blogs.
The topic being tackled today, the two different types of fees charged in connection to a Creditors Voluntary Liquidation ("CVL").
Statement of Affairs Fee ("S of A Fee")
The first fee that is charged in connection to a Creditors Voluntary Liquidation is a "Statement of Affairs Fee" ("S of A fee").
This is the fee paid for all of the work undertaken by the Insolvency Practitioner ("IP") and their firm prior to the meeting of shareholders - to resolve to place the company into liquidation - and the meeting of creditors to appoint a Liquidator.
The national average S of A is £4,000 to £5,000 plus VAT and disbursements. If you are using a London based firm the S of A fee is likely to be closer to £6,000 to £8,000 plus VAT and disbursements.
The reason the fee is so high is that there is a substantial amount of work to be done in connection to calling the meetings of shareholders and creditors, corresponding with creditors, preparing the Statement of Affairs for the meetings and the physical holding of the meetings on the day the Company is placed into liquidation. In addition there are statutory requirements for advertising in the London Gazette, that incurs a fee, and filing documents at the Registrar of Companies.
I will not go in to detail here about negotiating on the S of A fee but if you would like some help with this, please subscribe to the "5 secrets of a CVL", which are available on the Creditors Voluntary Liquidation page of our website.
It is here that the confusion occurs. Directors often think that this is the sole fee to be charged for the entire liquidation, when in fact it merely covers the work to the date the Company enters liquidation.
It is most probably poor communication by the IP but it is good to be aware, from a Director's point of view, of the total fees involved.
The Liquidator's Fees are the other fees that need to be charged in connection to a Creditors Voluntary Liquidation and covers the work done from the date of appointment to the final meeting and the release of the liquidator from office.
The insolvency industry has very recently (1 October 2015) undergone a major change in connection to Liquidator's Fees.
From 1 October 2015 the Insolvency (Amendment) Rules 2015 are effective and have changed the way Liquidator's fees are charged. As a result, Liquidator's Fees can only be charged as follows:
1. Fixed Fee - the Liquidator charges a set sum for the work he undertakes as part of the Liquidation.
2. Percentage Basis - the Liquidator is entitled to fees that amount to an agreed percentage of the asset realisations within the liquidation.
3. Time Costs - The Liquidator is entitled to charge fees in accordance with the amount of time he and his firm has spent on the case. However, following the rule changes on 1 October 2015, IPs must now provide an estimate of how much time they will spend on the case and this will act as a cap on their fees. If their time costs exceed this amount and they wish to charge more they must convene another meeting of creditors to resolve to increase their time costs and provide necessary evidence to show why their initial quote was insufficient.
Please note that it is possible to agreed a different basis of fee for the different aspects of the work the Liquidator undertakes. For example the fees for statutory work could be fixed fee, the assets realisations could be agreed on a time cost basis and the work undertaken investigating the company's affairs could be agreed on a time cost basis.
The Liquidator's Fees are voted upon by the creditors of the Company at a meeting of creditors and passed by way of a resolution at that meeting.
Following the Insolvency (Amendment) Rules 2015, the liquidator must now send his fee proposals to creditors ahead of the meeting to approve those fees to allow creditors time to review the proposed resolution.
It is hoped this will allow greater transparency in the fees that are to be charged.
I hope this blog has provided a little clarity in connection to the fees charged in a Creditors Voluntary Liquidation. Should you wish to discuss any aspects of this blog or specific issues with your Company, please do not hesitate to contact me. Telephone: 01326 340579, Email: email@example.com