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MoJ urged to make LASPO exemption U-turn

'Rogue directors' will be able to act with impunity, say insolvency professionals

20 November 2015

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The Ministry of Justice (MoJ) has been urged to scrap plans to end the exemption for insolvency litigation amid fears its removal will undermine the government's work in tackling white collar crime.

The Bar Council and insolvency trade body R3 are among a host of organisations which have written to the justice secretary, Michael Gove, calling for a permanent exemption.

The exemption, which appears in the Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act 2012, was given a two-year extension in February having originally been set for repeal in April.

The indefinite extension followed pressure from a coalition of concerned business, creditor, and insolvency groups.

The MoJ is due to make an announcement on the future of the exemption by the end of the year.

Campaigners claim that an end to the exemption could cost taxpayers and businesses as much as £160m per year - with the money staying in the hands of 'rogue directors' instead.

The new letter coincides with a new early day motion tabled by Greg Mulholland MP, calling for a government review of the plans to end the insolvency exemption.

Phillip Sykes, president of R3, commented: 'A commitment by the MoJ to keep the exemption is in the public interest. Without an exemption for insolvency litigation, there will be a completely uneven playing field, giving "rogue" directors an advantage over everyone else.'

'The exemption is used to return millions of pounds to creditors every year following business failures, including money owed to high street businesses and the taxpayer,' he continued.

Insolvency professions argue the exemption is needed to continue funding litigation against directors of failed companies and others that owe money to creditors.

As the insolvency practitioner is bringing a case on behalf of an insolvent company or individual's estate, there is usually no other money available to fund the case.

'If the exemption ends, it will be unaffordable in most cases to pursue rogue directors,' added Skyes. 'There will be no money in insolvent estates to fund cases, and costs won't be able to be claimed back from those that have taken money either.'

'Those who owe money to failed companies, such as their own directors, will know they can act with impunity. There will be nothing to stop them refusing to return money to creditors.'

Ian Fletcher, the British Property Federation's director of real estate policy, observed: 'No viable alternative to the exemption has been put forward since February, and so it is important to keep this protection in place for taxpayers and businesses, who otherwise may be left wrongly out of pocket with no easy way to chase those responsible.'

John van der Luit-Drummond is deputy editor for Solicitors | @JvdLD

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