UK insolvency practitioners will be required to provide upfront fee estimates from October

The changes, which will affect IPs working on the majority of insolvency procedures in England and Wales, will require them to provide a summary of estimated costs, the work to be undertaken and, where an hourly rate is proposed an estimate of the time they expect to be working on that case. Once agreed, the amount set out in the estimate may only be increased by agreement between the IP and those that are owed money by the insolvent firm.

The new rules follow an independent review of the system in 2013 and were consulted on last year. Business minister Jo Swinson said that the introduction of initial fee estimates was a "sensible and practical" way of giving creditors more certainty over fees, and would give IPs the opportunity to demonstrate how their services provide value for money.

"Insolvency practitioners do important and specialist work realising the assets of failed companies for distribution to suppliers and others owed money," she said. "Initial fee estimates, which can only be changed by agreement, will strengthen the position of those owed money to ensure that fees are fair and reasonable."

Insolvency expert Nick Pike of Pinsent Masons, the law firm behind Out-Law.com, said: "It is not at present clear whether the power to agree an increased fee rests solely with the creditors of the insolvency estate or whether if, as now, IPs have a right of appeal to the court if they are dissatisfied with the creditors' decision".

IPs act as officeholders during a number of different individual and business insolvency regimes. These include administration, administrative receivership, liquidation, bankruptcy and voluntary arrangements. The majority of IPs are authorised and self-regulated by a number of professional bodies, operating mostly in the accountancy and legal professions and overseen by the government's Insolvency Service. Each of these bodies has its own set of rules and regulations to ensure that the IPs they authorise are 'fit and proper' persons with the necessary experience, qualifications and insurance in place.

Currently, IPs in England and Wales usually charge by the hour without an indication of the work that will be done or the length of time that it is expected to take. The current average charge-out rate for the profession is £375 per hour, according to government figures. In her 2013 review, Bristol University academic Elaine Kempson found that unsecured creditors, whose debts are settled after those of secured creditors, did not have enough control over the fees charged by IPs. The review followed a number of industry-led changes to the regulatory regime, including the introduction of a common complaints gateway and sanctions.

Giles Frampton, president of insolvency trade body R3, said that the new up-front estimate system "should work for both creditors and the insolvency profession, and will help improve trust and transparency in our insolvency system". R3 has set up a new website to help small unsecured creditors engage with IPs and understand their role in the insolvency process.