A campaign led by North East insolvency experts has prompted a Government U-turn that could half costly legal changes to the insolvency regime.
Regional members of insolvency trade body R3 were supported by several North East MPs in their bid to change plans which clamped down on so called “no-win, no-fee” legal funding, or Conditional Fee Arrangements, that could hamper insolvency practitioners’ ability to retrieve money for creditors.
Under the planned changes, known as the “Jackson reforms”, insolvency litigation’s exemption from a crackdown on no-win, no-fee was slated to end in April, under the 2012 Legal Aid, Sentencing and Punishment of Offenders Act.
The R3 members objected to the move arguing that a no-win, no-fee approach was often the only means for creditors’ to pursue rogue directors.
The campaign, also highlighted that no-win, no-fee-backed insolvency litigation currently raises claims of around £300m per year, of which between £50m-£70m relates to money owed to HMRC.
Around £160m of the claims are recovered each year.
Mary Glindon, the Labour MP for North Tyneside, gave her backing to the campaign by tabling an Early Day Motion calling for a debate in the House of Commons on the impact of these changes, which was supported by over 60 MPs, including five more from the North East: Labour’s David Anderson, Ronnie Campbell, Alex Cunningham and Grahame Morris, and Ian Swales of the Liberal Democrats.
Justice minister Lord Faulks has now announced an extension to the exemption, suggesting that further measures for the funding of insolvency litigation would be outlined later this year.
Neil Harrold, R3 North East vice chair and a partner at Hay & Kilner Solicitors, said: “Having put a great deal of work into this project, R3’s North East members are extremely pleased with the Government’s decision, and very grateful to Mary Glindon and all the other regional MPs who got behind our campaign.
“Cracking down on rogue directors is extremely important, but it would have been these people that would have primarily benefited from the end of insolvency litigation’s exemption, and creditors, including the taxpayer and North East small businesses, would have been the ones losing out.
“Insolvency litigation brings back millions of pounds every year to small businesses and taxpayers owed money by negligent or fraudulent directors. This money would have been put at risk if insolvency practitioners lost their ability to use ‘no-win, no-fee’ funding from April.
“The decision is a big boost for the fight against business fraud and malpractice, and will help keep smaller creditors on a level playing field with those determined to withhold money from them.”