Insolvency profession not exempt from legal reforms

by Rachael Singh

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22 Jun 2011

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CLAMPDOWN on no-win no-fee legal cases will go ahead without any exemptions for insolvency professionals who pursue fraudulent directors for creditor funds.

Previously the government announced it may exclude insolvency practitioners from the litigation changes.

However, the Bill is due to be passed this week without any exemptions for the profession.

Earlier this year, the government-commissioned Jackson Report was published and included plans to abolish conditional fee arrangements (CFAs), better known as no-win, no-fee deals as part of the Legal Aid, Sentencing and Punishment of Offender Bill.

Insolvency professionals will now have to carefully consider whether pursuing funds through the courts, with all the added legal costs, is worthwhile.

Currently, practitioners receive damages, legal costs, solicitors' success fees and insurance costs if they win.

The changes mean practitioners would receive damages and legal costs if successful and be forced to pay success fees and insurance expenses out of the damages won.

HM Revenue & Customs, as a recurring unsecured creditor, could lose millions of pounds each year from the reforms if practitioners decide against pursuing directors through the courts.

R3 looked at 23 insolvency cases, which recovered £7.6m to creditors. Of the 23 cases, 13 practitioners said they would not have pursued the directors if these changes had been in place.

Insolvency trade body R3 president Frances Coulson said: "Insolvency practitioners are the ones charged with recouping money back from ‘dodgy' directors but the system for funding these cases has now been altered, which could reduce returns to creditors and leave funds in the pockets of directors.

"What was aimed at ‘no-win, no-fee' personal injury cases will impact negatively on other areas of litigation. R3, on behalf of the insolvency profession, is disappointed that the MoJ did not include an exemption for insolvency litigation as requested."

The reforms were brought in to reduce the numbers of what are known as ambulance-chasing lawyers in litigation cases.

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