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Insolvency Litigation – Legal Aid, Sentencing and Punishment of Offenders Act 2012

Thu 26 Feb 2015

No win no fee conditional fee arrangements (“CFAs”) have long been an important feature of insolvency litigation, enabling claims to be brought against delinquent directors and others for the benefit of creditors. The changes to CFAs brought in by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (“LASPO”) had threatened the future of insolvency litigation. A short term exemption from LASPO for such proceedings was due to expire on 1 April 2015.  

The insolvency sector, led by R3, the Association of Business Recovery Professionals (“R3”), had lobbied hard to extend the exemption, securing an Early Day Motion (“EDM”) to be submitted for debate in the House of Commons, calling on Ministers to review the legislation before the changes were due to come into force on 1 April 2015. It noted:

  • the negative impact on creditors including the taxpayer and businesses, as well as the public interest of the removal of the exemption;
  • concerns from business groups representing creditors including the Institute of Credit Management and British Property Federation; and
  • that more than £160m a year owed to businesses and the taxpayer could remain with directors or third parties that have wrongly, negligently or fraudulently taken money out of a business as a result of LASPO.

This lobbying has paid off.

Today, the Ministry of Justice has issued a written statement on behalf of the Minister for the Courts and Legal Aid, confirming that the exemption will continue and that no win no fee agreements in insolvency proceedings will continue on a pre-LASPO basis, with any CFA success fees and after the event insurance premiums remaining recoverable from the losing party.

R3 has been instrumental in bringing about the extension of the temporary exemption of insolvency litigation from LASPO due to the success of its campaign to date and the support it has received from those who wrote to their local MPs asking that they sign the EDM.

Concluding thoughts

The government will review the exemption further, but with further support for R3’s campaign, we can be confident of a future with a permanent exemption for insolvency litigation from LASPO. Continued support for the campaign will be needed, particularly once the new government is elected in May.

Marie-Louise King, partner at Winckworth Sherwood LLP, is a member of R3 and has been supporting the campaign throughout.

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