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26/02/2015

Ministry of Justice backs down in threat to £160m owed to creditors in insolvencies

The government has announced it is keeping an exemption for insolvency litigation from the Legal Aid, Sentencing, and Punishment of Offenders Act.

This decision protects £160m of creditors’ money a year that otherwise could have been kept by fraudulent or negligent directors or third parties.

Under the exemption, insolvency practitioners can continue to use ‘no-win, no-fee’ funding arrangements to pursue directors and third parties for creditors’ money.

Without the exemption, such court cases would be uneconomical.

Giles Frampton, president of R3, the insolvency trade body, which has campaigned for the exemption to be extended or made permanent, says:

“We are absolutely delighted by the government’s decision. Insolvency litigation brings back millions of pounds every year to small businesses and taxpayers owed money by negligent or fraudulent directors. This money would have been put at risk if insolvency practitioners lost their ability to use ‘no-win, no-fee’ funding from April.”

“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 extension of the exemption was announced in a written ministerial statement on 26 February by Justice minister Lord Faulks. He 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. We will consider the appropriate way forward for insolvency proceedings and will set out further details later in the year."

Notes to editors:

  • R3 is the trade body for Insolvency Professionals and represents the UK’s Insolvency Practitioners.

  • R3 comments on a wide variety of personal and corporate insolvency issues. Contact the press office, or see www.r3.org.uk for further information.

  • R3 promotes best practice for professionals working with financially troubled individuals and businesses; all R3 members are regulated by recognised professional bodies
     
  • R3 stands for 'Rescue, Recovery, and Renewal' and is also known as the Association of Business Recovery Professionals.