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MoJ backs down over scrapping insolvency litigation exemption

THE GOVERNMENT has backed down over controversial plans to scrap an exemption for insolvency litigation from a 2012 crackdown on the way no-win-no-fee legal cases are funded after coming under pressure from practitioners and MPs to retain the exemption.

Insolvency professionals had been on a collision course with the government over its decision to end practitioners’ temporary exemption from the Legal Aid, Sentencing and Punishment of Offenders Act (LAPSO) when it was due to expire in April.

The two-year exemption was granted to the profession following a far-reaching report by Lord Jackson into civil litigation and costs, which resulted in conditional fee arrangements and after-the-event insurance premiums being paid out of any damages awarded, thereby reducing the amount returned to creditors.

In a dramatic U-turn from the government’s original position, Justice Minister Lord Faulks said in a written statement that although the exemption was granted to give IPs time to “prepare for and adapt to the changes” the Ministry of Justice “now agrees that more time is needed” before the legal aid reforms apply to IPs.

“The government will therefore delay commencing sections…of the LASPO Act 2012 for insolvency proceedings for the time being,” Faulks said. “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.”

Giles Frampton, president of R3, the insolvency trade body which has campaigned for the exemption to be extended or made permanent, said the decision protects £160m of creditors’ money a year that otherwise could have been kept by fraudulent or negligent directors or third parties.

“This money would have been put at risk if insolvency practitioners lost their ability to use ‘no-win, no-fee’ funding from April,” Frampton said. “The decision is a big boost for the fight against business fraud and malpractice, and will help keep smaller creditors on a level playing field with those determined to withhold money from them.”

The MoJ will consider the appropriate way forward for insolvency proceedings and will set out further details later in the year.

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