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Insolvency exemption at an end

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It has been announced today - by the Ministry of Justice - that insolvency litigation will no longer be allowed to benefit from the 'LASPO exemption'.

Instead, from April 2016, insolvency litigation will be subject to the same costs regime as other forms of civil litigation. This will end the opportunity for recovery of success fees and insurance premiums from those who find themselves on the wrong end of a ruling in insolvency litigation.

Insolvency Practitioners, as office holders, are often faced with little funding with which to pursue litigation.  Indeed, there is very rarely any sort of funding available, whatsoever.  The removal of the exemption leaves office holders with even fewer choices in terms of finding suitable funding for litigation and assessing the balance of risk/recovery when claims are pursued.

The trade body R3 has confirmed its view that the new regime will allow one-time respondents to such claims, particularly rogue directors, to escape such litigation as there will be a reluctance and in some cases an inability for insolvency practitioners to bring such claims.  There is also particular focus on the financial loss for HMRC, which has previously been one of the main beneficiaries in terms of recovery as a result of such claims. 

There is a suggestion that this will leave a significant gap in the insolvency litigation funding market. However, such a  market will have to adapt, with litigation funders, insurers and assignment of insolvency claims no doubt coming to the fore.  

Of course, this does not spell the end for those seeking viable litigation funding. Stephensons is committed to working with IPs to find positive sources of funding wherever possible and the market has shown a readiness to adapt and respond to challenges such as these.

More: 'Emissions scandal sets clear course for future of litigation funding' - Read Alistair Gregory's latest blog