Insolvency profession not exempt from legal reforms

Insolvency profession not exempt from legal reforms

Government reforms to legal fees will increase insolvency practitioners' costs when pursuing dodgy directors for creditor funds

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.

Share

Subscribe to get your daily business insights

Resources & Whitepapers

Why Professional Services Firms Should Ditch Folders and Embrace Metadata
Professional Services

Why Professional Services Firms Should Ditch Folders and Embrace Metadata

3y

Why Professional Services Firms Should Ditch Folde...

In the past decade, the professional services industry has transformed significantly. Digital disruptions, increased competition, and changing market ...

View resource
2 Vital keys to Remaining Competitive for Professional Services Firms

2 Vital keys to Remaining Competitive for Professional Services Firms

3y

2 Vital keys to Remaining Competitive for Professi...

In recent months, professional services firms are facing more pressure than ever to deliver value to clients. Often, clients look at the firms own inf...

View resource
Turn Accounts Payable into a value-engine
Accounting Firms

Turn Accounts Payable into a value-engine

3y

Turn Accounts Payable into a value-engine

In a world of instant results and automated workloads, the potential for AP to drive insights and transform results is enormous. But, if you’re still ...

View resource
Digital Links: A guide to MTD in 2021
Making Tax Digital

Digital Links: A guide to MTD in 2021

3y

Digital Links: A guide to MTD in 2021

The first phase of Making Tax Digital (MTD) saw the requirement for the digital submission of the VAT Return using compliant software. That’s now behi...

View resource