Insolvency practitioner costs recovery exemption to be withdrawn

In a statement to Parliament on 17 December 2015 the Under Secretary of State for Justice Dominic Raab MP announced that the Government would not be renewing the exemption to sections 44 and 46 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 that applied exclusively to Insolvency Practitioners.

This means that from April 2016 it will not be possible for Insolvency Practitioners, who pursue litigation on behalf of a company or individual, to recover success fees payable to their lawyer under a Conditional Fee Arrangement (“CFA”); or the premium that is payable to an insurer who is providing After-the-Event legal costs coverage.

R3, an association for Business Recovery Professionals, had long lobbied Government for the extension of the LAPSO exemption on the basis that many necessary court actions will not be financially viable for Insolvency Practitioners to pursue without being able to recover the additional liabilities from a losing opponent. A report commissioned by R3 from the University of Wolverhampton and published in December 2015 revealed that the exemption directly contributed to the recovery of £480m owed by debtors of insolvent companies last financial year (2014/2015) and that in 2014 claims that were backed by CFAs worth £1billion were commenced. The report also confirmed that 86% of those consulted believed that the end of the exemption would lead to less money being returned to creditors and 49% said they would stop or decrease the number of recovery claims they are prepared to bring against debtors.

In light of these developments Insolvency Practitioners are encouraged to sign up to CFAs for all potentially viable cases before April 2016. To facilitate this Royds offer a free consultation service to Insolvency Practitioners at which we will provide an outline view on the merits of your particular case and rapid confirmation as to whether we can offer CFA terms.

For further information please contact Stewart Wilkinson, Ashok Patel, David Bowman and Milan Kapadia.