‘Jackson reforms’ and insolvency litigation

Year Published: 2014

In April 2013 the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) came into force and introduced changes to the civil justice system which were recommended by Lord Justice Jackson. The aims of the reforms were to ‘boost efficiency’ and ‘reduce the costs of litigation’.

LASPO introduced a number of fundamental changes to the funding of litigation which included:

  • Preventing the recovery of success fees incorporated into conditional fee agreements;
  • Preventing the recovery of ATE (after the event) insurance premiums.

When LASPO came into effect insolvency proceedings were granted a specific exemption from these elements of LASPO which is due to expire in April 2015.

The insolvency industry, led by R3, has been lobbying to extend this exemption beyond April 2015 on the basis that insolvency practitioners have a statutory duty to realise assets for the benefit of creditors. As a result they are often required to instigate proceedings for recovery of such assets without the funds to settle their costs in the event of failure.

Insolvency practitioners and their solicitors have expressed real concern that the loss of the ability to recover success fees and ATE insurance premiums would disproportionately affect their ability to issue proceedings in order to recover such assets.

Justice Minister Shailesh Vara has now said that, “While there may be a reduction in the number of cases brought where no-win, no-fee conditional fee agreements are used, overall the LASPO reforms will tackle excessive costs of litigation and the government does not propose to update the impact assessment in relation to insolvency proceedings.” This therefore means the LASPO reforms will apply to all insolvency proceedings as planned from April 2015.

In response R3 has written an open letter to the Prime Minister and Justice Secretary explaining the rationale for the exemption continuing. A copy of that letter can be found here.

Those of us who were in practice in April 2005, the date when Section 283A of the insolvency Act 1986 first took effect will recall the sheer number of applications issued in the run up to that deadline. Litigators saw a similar increase back in April 2013 when LASPO came into force and no doubt we can expect a similar rush in the build up to April 2015 unless the government can be persuaded to change course.

If you would like any further advice on the implication of Jackson reforms on insolvency litigation or any other insolvency matters, please contact our Dispute Resolution team on 0161 475 7676 or email [email protected].

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