As reported in Reed Smith’s March 2015 client alert, insolvency practitioners currently enjoy an exemption from the provisions of Part 2 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO). These provisions prohibit the recovery from the losing party of success fees under conditional fee arrangements (CFAs) and premiums paid under ‘after the event’ (ATE) legal expenses insurance policies.

However, the Ministry of Justice announced in December 2015 its intention to remove this exemption, with the provisions effecting the removal of the insolvency exemption coming into force in April 2016. There will be a Post Implementation Review of the LASPO Act Part 2 reforms between April 2016 and April 2018.

When Part 2 of LASPO was introduced for all other claims on 1 April 2013, the change was not retrospective. We would expect the same approach to be used regarding insolvency proceedings, meaning that funding arrangements entered into before April 2016 would likely continue to benefit from the exemption.

Reed Smith continues to offer a menu of alternative and risk-sharing fee structures in suitable cases, which can help to keep insolvency litigation commercially viable in light of these changes. That said, given that the specific benefits still available to insolvency claims will soon be withdrawn, it may be advantageous for potential claimants in insolvency proceedings to explore putting CFAs and/or ATE insurance packages in place before the current regime expires.