New Law to Change the Funding of Insolvency Cases

The campaign to stop a new law on legal funding of insolvencies is gathering pace as the debate intensifies. Campaigners are calling for a re-think of the change in policy that would cost creditors over 160 million pounds each year.

Justice Secretary Under Increasing Pressure

Powerful businesses organisations are petitioning Chris Grayling, the Justice secretary, urging him to abandon the new change in law which is planned to be introduced later this month. The change will mean litigation in insolvency cases would lose exemption from Legal Aid, under the Punishment and Sentencing of Offenders Act. That may sound complicated? But, it’s actually very simple; after the failure of a business, in almost all cases it will be virtually impossible to fund legal proceedings intended to reclaim debts owed to creditors by third parties or company directors. This is bad news if you are owed large sums of money by an unscrupulous operator who has folded a business only to buy the assets back and start trading again.

The UK’s Leading Business Organisations Unite

The petition to the Justice secretary is supported by ICAS, the Institute of Chartered Credit Management, the Small Business Federation, the Federation of British Property, ICAEW, Association of Certified Chartered Accountants and the insolvency trade association R3. Together they are demanding Chris Grayling delays the removal of the exemption until at least after the general election, in order to allow suitable time for a satisfactory policy review.

As the campaign has built momentum, action has included:

  • 60 members of Parliament from all three major parties signing an Early Day Motion asking the Government not to end the exemption;
  • Debate in the Lords centred on reviewing the decision, which led to Baroness Neville-Rolfe the Business minister agreeing to review the policy in conjunction with the Ministry of Justice;
  • Research by Birmingham University to prove that the exemption allows the possible recovery of £300 million of debts owed to creditors each year, including £80 million owed to the public as taxpayers. Currently around £160 million is successfully recovered and returned to creditors each year.

The Insolvency Litigation Experts View

The president of R3, Giles Frampton said in a statement: “The Punishment and Sentencing of Offenders Act followed a review by Lord Justice Jackson into legal costs, its ironic really that exemption of insolvency litigation actually achieves all of the aims that Jackson intended the Punishment and Sentencing of Offenders Act would achieve.”

“The public interest is protected by discouraging bad practice and even fraud while assistance is given to creditors; public money is also protected by returning taxpayer funds; and the costs in legal action are kept down by encouraging third parties and company directors to reach early settlement with creditors thus avoiding expensive Court hearings.”

So, with the election just around the corner, we think it’s about time Chris Grayling and the Government started listening to creditors who have suffered long enough already!