Insolvency exemption from the Jackson reforms extended beyond April 2015

It has today been announced by Lord Faulks QC, the Minister of State for Justice, that the temporary exemption allowing success fees under conditional fee agreements (CFAs) and after-the-event insurance premiums to be recovered in insolvency proceedings will remain in place.

The exemption from the Legal Aid, Sentencing and Punishment of Offenders Act 2012, will no longer end in April 2015 as was originally proposed, meaning that success fees and after-the-event insurance premiums will continue to be recoverable from the losing party.

The insolvency profession, spearheaded by R3 and supported by other bodies such as the British Property Federation, the Federation of Small Businesses and Chartered Institute of Credit Management, has long been lobbying for the exemption to be extended in order to allow the market to settle and for the government to carry out a review. R3's own commissioned research, carried out by Professor Peter Walton in 2014, found that if the exemption ends, more than £160m would be lost to directors who have been negligent or committed fraud as a consequence of insolvency office-holders being unable to recover success fees and after-the-event insurance premiums under CFAs—money that is owed to creditors and the taxpayer. Insolvency professionals had been writing to their MPs, and an Early Day Motion (No 673) was supported by more than 60 cross-party MPs.

In response to the announcement, Giles Frampton, president of R3, has said:

“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.”

It is, for the time being, an extension to the exemption—the exemption has not been made permanent, but it should not be underestimated that this is a significant victory for the insolvency profession. The announcement states that the Government will 'consider the appropriate way forward for insolvency proceedings and will set out further details later in the year'.

The Written Statement can be found here, and R3's statement can be found here.

Relevant Articles
Area of Interest