Insolvency litigation is to lose its exemption from the LASPO reforms, the government announced today as it revealed that the post-implementation review of the changes will not take place until around 2018.
Despite strong lobbying from insolvency and other business groups, civil justice minister Lord Faulks QC said that the exemption will come to an end from 1 April 2016.
The exemption had been due to end on 1 April 2015, but the government delayed it earlier this year.
In a statement issued to Parliament this morning, Lord Faulks said: “The government has made a priority of addressing the high costs of civil litigation in England and Wales.
“To that end, part 2 of the Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act 2012 reforms the operation of ‘no win, no fee’ conditional fee agreements. Those reforms came into effect generally in April 2013 but were delayed in respect of insolvency proceedings.
“After further consideration, the government has decided that the ‘no win, no fee’ reforms should now be applied to insolvency proceedings. The provisions will come into force for these cases in April 2016.
“It has already been announced that there will be a post-implementation review of the LASPO Act part 2 reforms between April 2016 and April 2018. The review will take place towards the end of that period.
“The review under section 48 of the Act in relation to mesothelioma cases will also take place as part of the post-implementation review.”
R3 – the representative body for insolvency professionals – had been pushing hard to have the exemption made permanent, and had also enlisted the support of other groups, such as the Institute of Chartered Accountants in England and Wales, the Bar Council, the Insolvency Practitioners Association, and the Federation of Small Businesses.
Phillip Sykes, president of R3, said today : “We are deeply disappointed by the Ministry of Justice’s decision. It’s a decision that flies in the face of all available evidence. The government is potentially writing off hundreds of millions of pounds per year owed to not just HMRC, but to hundreds, if not thousands, of ordinary honest businesses as well.
“The only winners today are the rogue directors and others who refuse to repay money owed to creditors after an insolvency. We’re back to an uneven playing field, where rogue directors hold all the cards – and the cash.
“At no point has the government engaged with the arguments in favour of extending the exemption, nor has it carried out an impact assessment of what the end of the exemption would mean.
“The end of the exemption leaves a huge funding black hole for insolvency litigation. This is a blow to the wider business community and the insolvency profession.”
R3 has produced research claiming that the type of litigation currently enabled by the exemption helps retrieve approximately £480m owed to creditors per year – including £115m owed to HM Revenue & Customs.
However, in a recent speech, Lord Justice Jackson said the exemption should come to an end, describing recoverability as “an instrument of oppression, which is liable to crush defendants who have a good defence”.