A coalition of six leading business groups has called on Prime Minister David Cameron to make permanent the exemption from the Jackson reforms currently applied to insolvency litigation.
The bodies warned that said that ending the exemption on 1 April 215 could cost creditors over £160m per year – “with rogue directors the big beneficiaries” because only the largest creditors would be able to afford to pursue litigation.
The letter – also sent to Chancellor George Osborne, business secretary Vince Cable and justice secretary Chris Grayling – was signed by the Institute of Credit Management, the British Property Federation, the Institute of Chartered Accountants in England and Wales, the Association of Chartered Certified Accountants, the Institute of Chartered Accountants Scotland, and insolvency trade body R3.
The government indicated only last month that it would not rethink ending the exemption in the Legal Aid, Sentencing and Punishment of Offenders Act 2012, which means at the moment that successful claimants operating under conditional fee agreements (CFAs) can still recover success fees and after-the-event premiums from defendants.
The letter said the change is “anti-business, will increase tax avoidance and evasion, and will benefit directors of insolvent companies who have committed fraud or behaved recklessly.”
It was R3 research earlier this year that estimated the loss to creditors, including HMRC and small businesses, at £160m if the exemption is ended, and the letter said that the current funding regime also protects the public interest and public money.
“We are concerned that the government has not carried out a review of this policy nor provided a sufficient explanation as to why insolvency litigation will not receive a permanent exemption. Officials from HMRC and the Ministry of Justice have asked that alternative funding regimes are found to replace the current regime; but academic research shows that there are no satisfactory alternatives.”
The R3 research said 78% of CFA-backed insolvency litigation returns up to £100,000 for creditors, which it claimed would be too small to attract third-party funding.
Giles Frampton, president of R3, said: “Quite rightly the government has stressed the importance of cracking down on directors who misbehave, but it’s these directors that will be the big winners from the end of insolvency litigation’s Jackson exemption. Creditors – including the taxpayer and small businesses – will be the ones who lose out.
“The government’s commitment to ending the exemption is misguided. The decision flies in the face of the available evidence and there has been no impact assessment on insolvency litigation.
“Insolvency litigation does everything the Jackson reforms were designed to protect. It’s in the public interest, it keeps legal costs down, and it protects public funds. It makes no sense for the exemption to end.”
Earlier this month, the High Court ruled that the Ministry of Justice had not properly reviewed its much-criticised decision to end the exemption from the Jackson reforms for mesothelioma cases.