The Bar Council has urged the government to reconsider its plans to end the Jackson reforms exemption currently applied to insolvency litigation.
Only last week the Ministry of Justice indicated that the exemption would end, as planned, on 1 April 2015, but the Bar Council said the move would put the public finances at risk.
“Insolvency litigation was identified for an exemption owning to the failure of the Ministry of Justice to assess the impact of the proposed reforms on this type of litigation,” it said in its report published last week on the first year of the Legal Aid, Sentencing and Punishment of Offenders Act 2012.
“While the exemption is likely to be revoked in April 2015, the Ministry of Justice has still failed to carry out an impact assessment.”
The report cited research earlier this year from the Association of Business Recovery Professionals, which argued that removing recoverability will make the majority of insolvency litigation too risky to conduct and thus have a serious impact on creditors, including HM Revenue & Customs (HMRC).
The research said CFA-backed insolvency litigation realises around £150-160m each year, of which £50-70m relates to monies owed to HMRC.
The Bar Council said: “Removing the exemption for insolvency litigation is therefore likely to cost the public purse around £50m annually. Disincentivising insolvency litigation also allows culpable behaviour by directors to go unpunished and undeterred.
“The Bar Council would encourage the Ministry of Justice seriously to consider whether, in the current financial climate where public funds are subject to austerity measures, it can justify removing an exemption which provides for the collection of public money.”
The Bar Council also reiterated its offer to work with the government to make damages-based agreements (DBAs) work: “Given that the government intended to make lawful new forms of litigation funding, such as DBAs, it is perverse to restrict their operation through poor legislative drafting.”
More broadly, barristers’ representative body said that while the Jackson reforms have only been operating since April 2013, further independent research into their impact is warranted by the various findings of its research.
“The continued commercialisation of compensation and recovery currently sits uncomfortably with the obligation of the state to provide accessible mechanisms for dispute resolution. Better understanding the impact of the Jackson reforms on access to justice will help ensure that future changes to the civil justice system are evidence-based.”