MoJ backs down over removal of LASPO insolvency exemption

A key exemption for insolvency litigation contained within LASPO is to be preserved, the government has announced.

The decision protects £160m of creditors' money that might otherwise have been kept by fraudulent or negligent directors.

Under the exemption, insolvency practitioners can continue to use 'no-win, no-fee' funding arrangements to pursue directors and third parties for creditors' money. It was feared that without the exemption in place, claimants would have found such cases uneconomical to pursue.

An extension of the exemption was announced in a written ministerial statement by justice minister Lord Faulks.

"Accordingly, no win no fee agreements in insolvency proceedings will continue for the time being to operate on a pre-LASPO Act basis with any conditional fee agreement success fees and after the event insurance premiums remaining recoverable from the losing party. We will consider the appropriate way forward for insolvency proceedings and will set out further details later in the year," he said.

Responding to the Lord Chancellor's U-turn, shadow justice minister Andy Slaughter MP, said: "The Labour Party, insolvency professional bodies and lawyers in the field have been pointing out for three years that applying LASPO to insolvency cases gave a green light to fraud and would cost the Treasury millions. Now we have another humiliating climb down a month before the rules were due to change.

"Under Grayling the administration of justice in the civil courts is becoming a shambles. No one seems to be in charge at the MoJ. The LASPO legislation is so pitted with faults that an early review of its impact is now essential."

Giles Frampton, president of the insolvency trade body R3, commented: "We are absolutely delighted by the government's decision. 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."

John van der Luit-Drummond is legal reporter for Solicitors Journal