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20/11/2015

Leading Business Groups Add To Call For £160m Ministry Of Justice Insolvency U-Turn

  • Three new groups add voices to long-running campaign for permanent insolvency exemption from LASPO Act
  • New letter to Minister coincides with new Early Day Motion on insolvency exemption tabled by Greg Mulholland MP
The Association of British Insurers, the Bar Council, and Insolvency Practitioners Association have joined seven other leading business groups calling on the Ministry of Justice to scrap plans to end the exemption for insolvency litigation from the 2012 Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act.
 
An end to the exemption could cost taxpayers and businesses as much as £160m per year – with the money staying in ‘rogue’ directors’ hands instead.
 
A permanent exemption for insolvency litigation from the LASPO Act is supported by: ACCA, the ABI, the Bar Council, the British Property Federation, the Chartered Institute of Credit Management, the FSB, ICAEW, ICAS, the Insolvency Practitioners Association, and insolvency trade body R3.
 
These groups have today written new letter to Justice Secretary Michael Gove calling for a permanent exemption.
 
The letter coincides with a new Early Day Motion tabled by Greg Mulholland MP, calling for a government review of the plans to end the insolvency exemption. An Early Day Motion in the last parliament was signed by 69 MPs.
 
A two-year exemption was due to end in April 2015, before being extended indefinitely in February 2015 following pressure from a coalition of concerned business, creditor, and insolvency groups.
 
The Ministry of Justice is due to make an announcement on the future of the exemption by the end of the year.
 
Phillip Sykes, president of R3, which is leading the campaign to keep the exemption, says: “A commitment by the Ministry of Justice to keep the exemption is in the public interest. Without an exemption for insolvency litigation, there will be a completely uneven playing field, giving ‘rogue’ directors an advantage over everyone else.”
 
“The exemption is used to return millions of pounds to creditors every year following business failures, including money owed to High Street businesses and the taxpayer.”
 
The exemption is needed to help the insolvency profession continue to fund litigation against directors of failed companies and others that withhold money owed to creditors.
 
Under the current exemption from the LASPO Act, the insolvency profession can continue to claim certain costs from defendants in successful cases. As the insolvency practitioner is bringing a case on behalf of an insolvent company or individual’s estate, there is usually no other money available to fund the case.
 
A 2014 report by the University of Wolverhampton found that as much as £160m is returned to creditors every year thanks to the type of case that benefits from the exemption.
 
Phillip Sykes adds: “If the exemption ends, it will be unaffordable in most cases to pursue ‘rogue directors’. There will be no money in insolvent estates to fund cases, and costs won’t be able to be claimed back from those that have taken money either.”
 
“Those who owe money to failed companies, such as their own directors, will know they can act with impunity. There will be nothing to stop them refusing to return money to creditors.”
 
The British Property Federation’s Director of Real Estate Policy, Ian Fletcher, says: “Although we were delighted that the government extended the exemption in February, it must now be made permanent. No viable alternative to the exemption has been put forward since February, and so it is important to keep this protection in place for taxpayers and businesses, who otherwise may be left wrongly out of pocket with no easy way to chase those responsible.”

  

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.