Out-Law News 2 min. read
22 Dec 2015, 4:18 pm
Part 2 of the Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) will come into force for insolvency cases on 1 April 2016, civil justice minister Lord Faulks announced. Trade body R3 and other industry groups had lobbied for insolvency cases to be permanently excluded from the civil court costs reforms, which came into force generally on 1 April 2013.
Nick Pike, an insolvency law expert at Pinsent Masons, the law firm behind Out-Law.com, said that the government's "change of heart" on the issue was "both unexpected and unwelcome". The only parties who would benefit from the changes would be "those found liable for wrongdoing in insolvency litigation", he said.
"There had been no indication that the dispensation would not be continued indefinitely after the extension granted in April 2013," he said.
"Since much insolvency litigation is conducted on a 'no win, no fee' basis by both insolvency practitioners and their lawyers, those lawyers are allowed to charge an uplift on their normal costs to compensate them for the risk of not receiving anything if the claim is unsuccessful or the defendant has insufficient assets to pay the debt due. Until now, that uplift - and the costs of an insurance policy the IP usually takes out to cover the risk of a court making a costs order against him - has been payable by the defendant if he loses," he said.
"Ironically, the burden of doing so will now fall on the creditors who have been wronged in the first place, since those costs will be borne by the funds in the IP's custody which would otherwise have been used to pay creditors," he said.
Leading English judge Lord Justice Jackson recommended that CFA 'success fees' and ATE premiums should no longer be recoverable from the losing party as part of his 2010 review of civil litigation funding in England and Wales. The aim of these proposals was to crack down on the rising cost of civil litigation, and to better protect public funds and the public interest.
When introduced, the rules included a temporary exemption for insolvency cases as a result of industry lobbying. This exemption was due to expire on 1 April 2015, but the government announced in March that it would keep it in place pending further review. Speaking in October, Lord Justice Jackson himself suggested that the exemption should end, saying that the insolvency profession had "had more than enough time to prepare for the changes".
Lord Faulks said that the government had "made a priority of addressing the high costs of civil litigation in England and Wales". As well as announcing that the no win no fee reforms would be extended to insolvency proceedings, he also announced that a planned post-implementation review of the reforms would not take place until 2018.
R3, the trade body for the insolvency industry, said that it was "deeply disappointed" by the announcement, which "flies in the face of all available evidence".
"The exemption helps level the playing field between ordinary creditors and those withholding money from them," said R3 president Phillip Sykes. "Without the exemption, creditors and the insolvency professional have an uphill struggle to retrieve what is owed."
"If the government is cutting budgets and trying to boost tax revenues, I don't see how it can justify happily saying goodbye to up to £115 million of taxpayer money a year. The government is cutting off its nose to spite its face," he said.
The £115m figure quoted by R3 is based on the amount recovered by HM Revenue and Customs (HMRC) as a creditor in insolvency proceedings, and comes from research conducted by Professor Peter Walton of the University of Wolverhampton on behalf of R3.