Half a billion pound payday for rogue directors as MoJ ends insolvency exemption

The Ministry of Justice (MoJ) is to scrap the insolvency litigation exemption from the Legal Aid, Sentencing and Punishment of Offenders Act 2012, in a move that has been described as a blow to business.

Without the exemption, insolvency professionals claim that litigation will be difficult to fund.

The exemption was given an extension in February, having originally been set for repeal in April, and its retention has been backed by a host of organisations including the Bar Council.

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

Responding to the news, Phillip Sykes, president of insolvency trade body R3, said he was deeply disappointed by the MoJ's decision which flew in the face of 'all available evidence'.

'The government is potentially writing off hundreds of millions of pounds per year owed to not just HMRC, but to hundreds, if not thousands, of ordinary honest businesses as well,' he commented.

Sykes added that the only winners from the MoJ's decision were rogue landlords and others who refuse to repay money owed to creditors after insolvency.

'We're back to an uneven playing field, where rogue directors hold all the cards - and the cash.'

Research from the University of Wolverhampton showed the exemption had assisted in the retrieval of approximately £480m owed to creditors from rogue directors every year, with £1bn of new claims begun in 2014.

'At no point has the government engaged with the arguments in favour of extending the exemption, nor has it carried out an impact assessment of what the end of the exemption would mean,' claimed Sykes.

'The end of the exemption leaves a huge funding black hole for insolvency litigation. This is a blow to the wider business community and the insolvency profession.'

John van der Luit-Drummond is deputy editor for Solicitors Journal
john.vanderluit@solicitorsjournal.co.uk | @JvdLD