LASPO extension—relief for insolvency practitioners

Does the extension of the temporary exemption allowing no win no fee agreements for insolvency proceedings give hope for a future permanent exemption? Frances Coulson, head of insolvency litigation  at Moon Beever and former president of R3, offers her thoughts on this latest development.

Original news

Further delay in implementing LASPO insolvency reforms

‘No win no fee' agreements in insolvency proceedings will continue to operate on the same basis as before the coming into force of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO 2012) for the time being, with any conditional fee agreement success fees and after the event insurance (ATE) premiums remaining recoverable from the losing party. A Written Statement by the Minister of State for Civil Justice and Legal Policy on 26 February 2015 says more time is needed for insolvency practitioners to prepare for to the changes.

What does the government statement today actually mean, in your view?

We are hopeful this means the government will agree to a permanent exemption in the long run as this announcement indicates the government have accepted the logic of the argument. However, the insolvency community should continue lobbying on this issue.

What does this mean for insolvency litigators and insolvency practitioners in practice?

This announcement raises two issues:

  • it assists in keeping (in particular smaller) cases going that would be unfeasible without the exemption
  • while the temporary exemption is to be welcomed, it won’t be enough to settle the market

The challenge of how to approach ATE premiums remains. However, there are things that can be done to limit ATE premiums. For example, the profession could look at its collective negotiating power as a whole to perhaps limit costs.

It is fair to say there is a place for funding and a place for ATE—this area remains a melting pot. The difficulty for practitioners remains that if the exemption doesn't become permanent the irrecoverability of fees would make many cases too risky to start as the economics of the case wouldn’t benefit creditors.

In your view, is this the end of the road now, and the exemption is here to stay, or is this a short term measure?

Although to be welcomed, the lobbying efforts need to continue and the insolvency community needs to continue to support a permanent exemption. Academic research conducted by Professor Walton of Wolverhampton University published last year shows that the exemption is the best option.

With a general election in May 2015, we are unable to predict the political landscape in the coming months so the position will remain uncertain until after the ballots close in May. However, all the parliamentarians I have spoken to have said the issue is a no-brainer. In addition, the Shadow Justice Team has been strongly supportive of a permanent exemption and even tabled an amendment to the Small Business Bill to give a permanent exemption. Almost 10% of cross-party MPs signed an Early Day Motion likewise in favour of the exemption.

In reality this is probably now a post-election issue, but keeping awareness of the issue on the political agenda is important. Things could happen rapidly post-election.

Can you give any practical tips to IPs or lawyers wondering what they should do now if contemplating litigation in future?

Again, every case is different, and lawyers and IPs will need to do the sums on whether it is worth getting cover now regardless (eg immediate cover of £x for a small fee) compared with an individual application for ATE on each case whether it is ready for issue or not.

This issue is very important as fraud and misfeasance which can be tackled through the insolvency legislation costs creditors and the taxpayer many millions of pounds each year, if not hundreds of millions. Maintaining the ability for redress is important as the criminal law and the Insolvency Service can’t solve everything. IPs provide a huge additional resource for fostering compliance and competition.

Interviewed by Guy Skelton.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Further Reading

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Ways in which an IP can fund litigation/investigations where there are no assets in the estate

Conditional fee agreements—questions answered

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First published on LexisPSL Restructuring and Insolvency

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