Justice minister Shailesh Vara has announced that the government has decided to drop its plan to extend sections 44 and 46 of LASPO to insolvency cases “for the time being”.
Business groups, led by insolvency trade body R3, have strongly opposed the move, which would end recoverability of success fees and insurance premiums.
In a written statement to the House of Commons today, Mr Vara said the government would delay “for the time being” implementation of sections 44 and 46 of the Legal, Sentencing and Punishment of Offenders Act 2012 for insolvency cases.
“Accordingly, no win no fee agreements in insolvency proceedings will continue for the time being to operate on a pre-LASPO Act basis, with any conditional fee agreement success fees and after the event insurance premiums remaining recoverable from the losing party.
“We will consider the appropriate way forward for insolvency proceedings and will set out further details later in the year.”
Mr Vara said the government had made a priority of addressing the high costs of civil litigation in England and Wales through LASPO, but had agreed to delay implementation of sections 44 and 46 until April 2015.
“This delay was to give insolvency practitioners and other interested parties time to prepare for and adapt to the changes. However, the government now agrees that more time is needed.”
Having initially shown no intention of changing its position on the exemption, the first sign of movement came last month after Conservative peer Lord Flight, citing R3’s lobbying, laid an amendment to the Small Business, Enterprise and Employment Bill that would make the exemption permanent.
Business minister Baroness Neville-Rolfe said she noted the concerns that litigation brought on behalf of insolvent estates has some differences in principle to other types of litigation, and about the potential impacts on litigation practice on behalf of insolvent estates.
“I have heard what has been said and, if I may, I will take this amendment away and consider it urgently with colleagues in the Ministry of Justice in time for report stage.”
A coalition of business groups wrote to David Cameron in October, warning him that ending the exemption on 1 April 2015 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 R3, the Institute of Credit Management, the British Property Federation, the Institute of Chartered Accountants in England and Wales, the Association of Chartered Certified Accountants, and the Institute of Chartered Accountants Scotland.