18 January 2016: On 17 December 2015, the Ministry of Justice announced that insolvency litigation will lose its exemption from the Legal Aid, Sentencing and Punishment of Offenders Act 2012 ("LASPO") with effect from 1 April 2016. This is part of the Government's drive to address the high costs of civil litigation in England and Wales.
The effect of insolvency litigation losing its exemption is that success fees in Conditional Fee Arrangement cases (so called "no win-no fee" cases) and after-the-event insurance premiums will no longer be recoverable from losing defendants. Normal costs will of course still be recoverable.
Trade body R3 (The Association of Business Recovery Professionals) had lobbied extensively for the Government to allow the insolvency litigation exemption to continue, stating that the exemption helps insolvency practitioners to recover £480m a year from rogue directors and others. Without the exemption, it was argued that insolvency litigation will be hard to pursue as often there is no money left in an insolvent company to fund legal action to recover funds for the benefit of creditors.
It will only become clear some time after 1 April 2016 whether returns to creditors have really been adversely affected by the removal of insolvency litigation's exemption from LASPO but it will be interesting to see the innovation in the insolvency litigation funding market in the coming months and years and, who knows, it may prove to be the case that returns to creditors are improved as a consequence.
Watch this space…