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R3 disappointed by scrapping of ‘no win no fee’ exemption

INSOLVENCY trade body R3 has expressed disappointment at the government’s decision to end the exemption for insolvency litigation from the Legal Aid, Sentencing and Punishment of Offenders Act 2012.

The Ministry of Justice announced that it is scrapping an exemption for insolvency litigation from a 2012 crackdown on the way no-win-no-fee legal cases are funded. A two-year exemption had been 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.

Recent research by the University of Wolverhampton showed that this exemption helps retrieve approximately £480m owed to creditors from rogue directors and others every year, with £1bn of new claims begun in 2014.

Phillip Sykes, president of R3, the insolvency trade body, said: “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.”

The insolvency exemption from the LASPO Act provided that certain costs (e.g. the Conditional Fee Arrangement uplift) could continue to be reclaimed from losing defendants in insolvency litigation. This sort of litigation is used to retrieve money owed to insolvent companies (which can be repaid to creditors) from individuals or organisations that are refusing to pay it back.

Without the exemption, the insolvency profession and business groups are worried that such insolvency litigation will be difficult to fund: there is often no money left in an insolvent company to fund legal action without the ability to reclaim costs.

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