UK business groups have signed a letter to the government warning against reforms to insolvency litigation.
Business and accountancy groups have come together to highlight the millions of pounds that could be lost with reforms to insolvency litigation included under the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO).
Under LASPO, the exemption of insolvency litigation from ‘no win no fee’ legal funding will end. This will make it incredibly difficult for creditors to afford the legal costs incurred when attempting to collect sums from rogue directors.
These changes to the act – which come into force from April 2015 – will mean that success fees and after-the-event insurance premiums will be paid out of damages awarded, rather than being an additional cost to the losing side.
In the letter, the groups estimate that this will cost both HMRC and businesses around £160 million a year.
The concerns were raised earlier in the year by the insolvency trade body R3, but this more recent appeal highlights the failure by the Ministry of Justice to respond to the issue.
The letter sent to prime minister David Cameron – which has been signed by R3, the British Property Federation, the Institute of Credit Management and three accountancy groups – says the changes ‘are anti-business, will increase tax avoidance and evasion, and will benefit directors of insolvent companies who have committed fraud or behaved recklessly’.
Cases of mesothelioma and insolvency were originally allowed temporary exemption from the Jackson reforms – as with defamation cases – in order to setup an alternative system of funding. As no replacement mechanism has been found the government is ending the exemptions for both types of legal case.
R3 president Giles Frampton has said that directors who misbehave will significantly benefit from the insolvency litigation reforms. The removal of the current exemption will leave only large creditors able to chase wrongdoers, while taxpayers and small business will “lose out”.