{"id":11245,"date":"2011-01-19T16:49:02","date_gmt":"2011-01-19T16:49:02","guid":{"rendered":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/?p=11245"},"modified":"2019-08-07T16:51:56","modified_gmt":"2019-08-07T15:51:56","slug":"who-pays-insolvency-costs","status":"publish","type":"post","link":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/who-pays-insolvency-costs\/","title":{"rendered":"Who pays Insolvency Costs?"},"content":{"rendered":"\n

Firms which offer insolvency services such as Individual Voluntary \nArrangements (IVAs) or other financial solutions do so because it is a \nbusiness and because they have an expectation of making a profit from \nthe business. If they do not make a profit, ultimately they go out of \nbusiness. In the last two years in particular, a number of IVA providers\n have ceased to trade for this very reason.<\/p>\n\n\n\n\n\n\n\n

For some of the insolvency firms who ceased to trade, the underlying cause was that about three years ago creditors decided to sharply reduce the fees they were willing to pay providers of insolvency services. The mechanism used by creditors to do this was to appoint and authorize agents to act on their behalf and deal with IVA proposals put forward by debtors and the insolvency firms who represented them. These agents of course cost money but creditors felt that they would be self financing in that any money saved from reductions in fees would be more than enough to cover the cost of the agents\u2019 services. In addition creditors felt that there were efficiencies to be gained from the economy of scale which using such agents would afford.<\/p>\n\n\n\n

\"Fees<\/figure>\n\n\n\n

The agents would build up expertise in due course and would represent a wide range of creditors. They could standardize the approach to IVA proposals in the interests of creditors whom they represented. Rather than a diverse bunch of creditors each seeking to apply their own often conflicting modifications to a debtor\u2019s proposal, they could engage the services of one or two agents. These agents would be able to standardize modifications to debtors\u2019 IVA proposals and have the voting strength to get them approved. Most modifications have the goal of increasing the dividends to creditors by either increasing the contributions by debtors or reducing the administrations costs of the IP (fees and disbursements) or a combination of both. Using agents in this way created what was in effect a cartel where the interests of the creditors were merged and maximized and the interests of the debtor, as represented by their IP, were suppressed.<\/p>\n\n\n\n

By driving down fees in this way creditors have made it almost \nuneconomic for firms to provide insolvency services and in particular \nIVA services to debtors while dividends for creditors were maximized. \nClearly, creditors feel that it is they who pay the administration costs\n of the IVA. The debtor makes his or her monthly contributions to the \nIVA over the usual five years term. These monies are used to pay the \nadministration costs (IP fees and disbursements) of the IVA including \nVAT and to pay dividends to creditors, with a portion of the debts being\n written off.<\/p>\n\n\n\n

Although the administration costs are paid out of the contributions \nmade to the IVA by the debtor, it is true to say that it is the creditor\n who pays. After all it was the creditor who lent the money in the first\n place and it is the creditor who is going to have to make do with just a\n portion of the debt being repaid. It should not be a concern to the \ndebtor who pays the costs.<\/p>\n\n\n\n

The debtor also gains or at least does not lose even when the \nproposal for an IVA is rejected by creditors. In this case it is clearly\n the IP and his or her insolvency firm which loses mainly because most \nreputable insolvency firms who provide advice do not charge any upfront \nfees. The IP or the insolvency firm incurs all the costs of researching \nand compiling the IVA proposal and in most cases it is on a \u2018no foal, no\n fee\u2019 basis. If the IVA proposal is rejected, the debtor has nothing to \npay. The services already provided by the IP\u2019s firm would usually \ninclude investigating the financial circumstances of the debtor and \nconsidering all available options for a financial solution including \nIVA, bankruptcy, debt management or possibly debt consolidation and \nadvising the debtor accordingly.<\/p>\n\n\n\n

If the debtor decides to proceed with an IVA the nominee usually \ncarries out all the preparatory work again without charging the debtor. \nIf the IVA proposal is rejected at the meeting of creditors, then the \ndebtor has nothing to pay and the reputable insolvency firm has to bear \nsubstantial costs without receiving any fee.<\/p>\n\n\n\n

However, not all insolvency firms behave in this way. It is incumbent\n on the debtor to determine and to clarify precisely what will be free \nand what will not. The best time to do this is at the very beginning of \nthe process. If not satisfied with the IP or with the insolvency firm or\n if explanations are unclear the debtor should simply walk away and go \nto another provider \u2013 and another \u2013 until satisfaction is obtained. With\n the level of competition in the marketplace, there are plenty of firms \neager to provide insolvency services and capable of doing so in a \nprofessional way. Internet search engines also provide a route to \nsatisfaction. Initial enquiries can be done by phone so when the debtor \ncontacts a reputable firm, lack of knowledge about financial matters \nwill not be a source of embarrassment.<\/p>\n","protected":false},"excerpt":{"rendered":"

Firms which offer insolvency services such as Individual Voluntary Arrangements (IVAs) or other financial solutions do so because it is a business and because they have an expectation of making a profit from the business. <\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_seopress_robots_primary_cat":"none","_seopress_titles_title":"","_seopress_titles_desc":"","_seopress_robots_index":"","footnotes":""},"categories":[7],"tags":[],"class_list":["post-11245","post","type-post","status-publish","format-standard","hentry","category-iva-articles"],"_links":{"self":[{"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/posts\/11245","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/comments?post=11245"}],"version-history":[{"count":1,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/posts\/11245\/revisions"}],"predecessor-version":[{"id":11251,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/posts\/11245\/revisions\/11251"}],"wp:attachment":[{"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/media?parent=11245"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/categories?post=11245"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nationaldebtrelief.co.uk\/debt-articles\/wp-json\/wp\/v2\/tags?post=11245"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}