1.1 In a voluntary arrangement, as in other types of insolvency, the amount of money available for creditors is likely to be affected by the level of costs, including the remuneration of the insolvency practitioner appointed to implement the arrangement. This guide explains how fees are fixed in voluntary arrangements, how the creditors can affect the level of fees, and the information which should be made available to them regarding fees.
2.1 Voluntary arrangements are available to both companies and individual debtors. Company voluntary arrangements are often referred to as CVAs, and individual voluntary arrangements as IVAs.
2.2 The procedure is similar for both CVAs and IVAs and enables the company or individual to
put a proposal to their creditors for a composition in satisfaction of their debts or a scheme of arrangement to settle their affairs. A composition is an agreement under which creditors agree to accept a certain sum of money in settlement of the debts due to them.
2.3 A CVA may be used as a stand-alone procedure or as an exit route from an administration. It may also be used where a company is in liquidation, but this is extremely rare. The proposal will be made by the directors, the administrator or the liquidator, depending on the circumstances.
2.4 A proposal for an IVA may be made by a debtor whether or not he is already subject to bankruptcy proceedings.
2.5 The voluntary arrangement procedure is extremely flexible and the form which the voluntary arrangement takes will depend on the terms of the proposal agreed by the creditors.
2.6 In both CVAs and IVAs the proposal must provide for an insolvency practitioner to supervise the implementation of the arrangement. Until the proposal is approved by the creditors, the practitioner is known as the nominee. If the proposal is approved, the nominee (or if the creditors choose to replace him, his replacement) becomes the supervisor.
3.1 The fees, costs, charges and expenses which may be incurred for the purposes of a voluntary arrangement are set out in the Insolvency (England and Wales) Rules 2016. They are:
3.2 The rules require the following matters to be stated or otherwise dealt with in the proposal:
3.3 The rules do not specify on what basis the fees of the nominee or supervisor is to be calculated. This is for agreement between the debtor or the company and the creditors. The fees may be stated as a fixed sum, as a percentage of funds coming into the arrangement or by reference to the time costs of the nominee or supervisor and his staff.
4.1 It is for the creditors to decide whether to agree the terms relating to remuneration along with the other provisions of the proposal. The creditors have the power to modify any of the terms of the proposal (with the consent of the debtor in the case of an IVA), including those relating to the fixing of remuneration. The nominee should be prepared to disclose the basis of his fees, and proposals for charging the supervisor’s fees to the creditors. Although there are no further statutory provisions relating to remuneration in voluntary arrangements, the terms of the proposal may provide for the establishment of a committee of creditors and may include among its functions the fixing of the supervisor’s remuneration.
5.1.1 Those responsible for approving payments to the nominee, supervisor or their associates should be provided with sufficient information to make an informed judgement about the reasonableness of their requests.
5.1.2 Information provided by the nominee, supervisor or proposed supervisor should be presented in a manner which is transparent, consistent throughout the life of the case and useful to creditors and other interested parties, whilst being proportionate to the case.
5.1.3 A nominee/supervisor should disclose:
5.1.4 The nominee/supervisor should inform creditors and other interested parties of their rights under insolvency legislation and should advise them how they may access suitable information setting out their rights within the first communication with them and in each subsequent report.
5.1.5 Where a nominee/supervisor sub-contracts out work that could otherwise be carried out by the office holder or his staff, this should be drawn to the attention of creditors with an explanation of why it is being done.
5.2.1 The key issues of concern to those with a financial interest in the level of payments from the insolvency estate will commonly be:
5.2.2 When providing information about payments, fees, and expenses to those with a financial interest in the level of payments from the arrangement, the nominee/supervisor should do so in a way which facilitates clarity of understanding of these key issues. Narrative explanations should be provided to support any numerical information supplied. Such an approach should allow creditors and other interested parties to better recognise the nature of a nominee’s/supervisor’s role and the work they intend to undertake or have undertaken, in accordance with the key issues. The nominee/supervisor should provide an indication of the likely return to creditors when seeking approval for the basis of their remuneration.
5.2.3 Where approval for a fixed amount or percentage basis is sought, the nominee/supervisor/proposed supervisor should explain why the basis requested is expected to produce a fair and reasonable reflection of the work that the nominee/supervisor/proposed supervisor anticipates will be undertaken.
6.1 The proposal should include full disclosure of all costs and disbursements anticipated to be incurred during the arrangement.
6.2 Costs met by and reimbursed to the supervisor in connection with the arrangement will fall into two categories:
6.3 The following are not permissible as disbursements:
7.1 Following approval of the arrangement, the supervisor should ensure that full disclosure is made, in reports to creditors, of the costs of the arrangement and of any other sources of income of the supervisor or their practice, in relation to the case. The supervisor should specify the amount of the remuneration he has drawn, in accordance with the terms of the proposal. Any disclosure by the supervisor of payments, remuneration and expenses should be of assistance to those who have a financial interest in the level of payments in understanding what was done, why it was done and how much it costs. Reports should include a narrative update in respect of the supervisor’s activity during the period being reported upon and on a cumulative basis.
7.2 If the costs of the arrangement have increased beyond previously reported estimates, this increase should be reported at the next available opportunity.
7.3 The supervisor should also provide such additional information as may be required in accordance with paragraph 5.2. Requests for additional information should be treated in a fair and reasonable way and the provision of information should be proportionate to the circumstances of the case.
7.4 Where the basis of the remuneration of the nominee or supervisor has been fixed on the basis of time spent, the nominee or supervisor is required to provide certain information about the time spent on the case, free of charge, upon request by specified persons. The persons entitled to ask for this information are –
7.5 The information which must be provided is –
This guide applies where the nominee in relation to the arrangement agrees to act on or after 6 April 2017, or where information is provided by the supervisor about fees, expenses or other payments on or after 6 April 2017.