Insolvency exemption U turn by Govt. could save ‘£160m a year for small businesses and taxpayers’

The Legal Aid, Sentencing, and Punishment of Offenders Act (LASPO), which outlawed ‘no-win: no-fee’ practices by lawyers, has been modified to prolong an exemption for insolvency litigation.

The legislation, which sought to end the ‘compensation culture’ encouraged by ‘no-win: no-fee’ promotions from personal injury solicitors, was criticised when it came into law 2 years ago. The LASPO Act was slated by practitioners until the insolvency exemption was brought in by the Government. They said it would protect deceitful and careless company directors from prosecution. Legal brains claimed smaller creditors wouldn't be able to afford the legal fees in many insolvency cases if costs were not reclaimable from the losing side.

Insolvency exemption 'extended til later this year'

The complaints led to an exception for insolvency proceedings from the LASPO legislation until April 2015. However, thesuspension has now been extended until later this year. The trade association R3 has campaigned for over 2 years for the insolvency exemption to continue.  R3 claim the decision could protect up to £160m of creditors’ money a year. This money could otherwise have been kept by fraudulent or negligent directors or third parties.

R3 president Giles Frampton 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 exemption ended. Practitioners would lose 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. It will help keep smaller creditors on a level playing field with those determined to withhold money from them.”

Cases 'uneconomical' without insolvency exemption 

Under the insolvency exemption practitioners can still employ ‘no-win, no-fee’ arrangements to chase defaulting directors. Without the exclusion, the majority of court cases would be uneconomical. Justice Minister Lord Faulks announced the extension of the insolvency exemption in a written ministerial statement today (26 February).

“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." You can read the full statement from the Ministry of Justice here.

Act now - insolvency is often too late

Unfortunately businesses go bust for a variety of reasons - not always due to negligent or fraudulent behaviour. "If you have a bad debt or a late paying customer that you think might be in financial difficulty, it pays to act quickly, said Dukes MD Colin Naylor. "Insolvency often means smaller creditors are left at the back of the queue when it comes to settling debts. SMEs invariably come behind the HMRC and Banks - so if you want to maximise the chances of getting your money, call Dukes first. We can provide a variety of methods to help you get paid, including a tried and tested debt recovery service, High Court Enforcement, charging orders and attachments of earnings. As always in debt collection though, moving fast is key."

You can call Dukes on 0844 880 9808 for a free, no obligation chat about how we can recover the money you're owed.