LASPO to apply to Insolvency Proceedings

1 April 2013 saw the introduction of a number of new Court Rules further to a review of civil litigation funding by Lord Justice Jackson; also know as the Jackson Reforms.

One of those reforms was the introduction of sections 44 and 46 of the Legal Aid Sentencing and Punishment of Offences Act 2012 ("LASPO"). Those sections removed the ability of the 'winning' party to recover success fees in Conditional Fee Agreements (CFAs) and after-the-event insurance (ATE) premiums from the 'losing' party. After 1 April 2013, and for CFAs and ATE policies taken out after that date, those fees and premiums have to now instead be borne by the 'winning' party. However, there were exceptions; one of which, being insolvency proceedings.

Acknowledging the substantial revenue generated to the taxpayer and creditors from the ability to recover those fees and premiums, the Government stated at the time of implementation of LASPO that there would be a two year grace period for insolvency proceedings. However, recent legal press has reported that the grace from LASPO is to end in April 2015.

Whilst there is no confirmed and exact date for implementation (commentators speculating on 1 April 2015), there will definitely be a line drawn under the exemption.

It was estimated by Professor Peter Walton, the author of the Government's impact assessment report from 2011, that CFA-backed insolvency litigation generates and realises an estimated £150m - £160m per annum; £50m - £70m of which relating to monies owed to HMRC. The obvious concern from those against the implementation of LASPO to insolvency proceedings is that most of that money will be lost as Insolvency Practitioners will have to make payment of CFA success fees and ATE premiums from the monies recovered, rather than recovering them from the 'losing party'.

This will no doubt come as disappointing news to those who have been lobbying for the exemption to apply indefinitely; particularly, when details of alternative arrangements for funding do not appear to have been finalised.

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.