We welcome the Government’s announcement today that the insolvency exemption to the Jackson reforms will remain in place for the foreseeable future, although it will be reviewed later in the year.

Following the Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act 2012, success fees under “No Win, No Fee” conditional fee agreements are generally no longer recoverable from opponents and neither are premiums under after the event (ATE) legal expenses insurance policies.

These provisions do not currently apply to litigation brought by office holders in formal insolvency procedures. The logic of this delay in removing the exemption was understood to be:

  • that the perceived abuses of the No Win No Fee and ATE funding options had not taken place in insolvency litigation (contrast with Personal Injury claims);
  • these funding options enabled office holders to pursue claims with relatively little personal risk on costs.

Public policy dictates that insolvency practitioners should be able to recover money properly due for the benefit of creditors, particularly where this may include claims against fraudulent directors or recipients of money or assets at undervalue.

However, since April 2013 it had been the Government’s expressed intention to bring this exemption to an end in April this year – until today.

The view of the resounding majority, if not all commentators and interested parties, has been that the end of the insolvency exemption would result in a decrease in litigation being pursued by insolvency practitioners, to the ultimate detriment of creditors. In practical terms, Liquidators, Administrators and Trustees in Bankruptcy would almost certainly conclude that it would no longer be commercially viable to litigate over low value debts, even where the case has a good prospect of success.

We therefore hope that today’s announcement is the beginning of a government initiative to kick the end of the insolvency exemption into the long grass, which ultimately opens a politically low key path to the exemption being made permanent.