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Insolvency litigation - The funding starts now

View profile for Alistair Gregory
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Legal help shouldnt be a luxury for SMEs

On 17 December 2015 the Ministry of Justice confirmed that as of April 2016 insolvency litigation would no longer have the benefit of the LASPO (legal aid) exemption which it previously enjoyed. Albeit disappointing, the decision by the MoJ was not entirely unexpected; it simply enforces a decision which had originally been planned for April 2015.

Under the current exemption regime, Insolvency Practitioners can instruct solicitors on Conditional Fee Agreements (“CFA”) and take out After the Event (ATE) insurance to cover adverse legal costs. In the event that the claim is successful, insolvency practitioners can then claim a success fee and adverse costs directly from the Defendant.

By removing the exemption insolvency litigation will be subject to the same costs regime as other forms of civil litigation.

Critics, of whom there are many, argue that these changes will reduce returns to creditors as legal fees will be taken from the insolvent estate. It is believed that there will now be far more reluctance to bring claims. The foremost critic of the reforms is R3, the representative body for insolvency professionals, who were said to be “deeply disappointed” by the changes. R3 feels the government is “potentially writing off hundred of millions of pounds per year” and that the reforms will lead to an “uneven playing field.”

However, it is not all doom and gloom and there is an argument to suggest that the new regime will in the long term prove beneficial and more economically pragmatic. Certainly funding is still available and there is choice for those seeking to bring claims. Rather than practitioners pursuing each and every case, the reforms will lead to cases being brought subject to them having good prospects of success and recovery; many argue this is a positive step. In any event, normal costs have been and always will be recoverable if a claim is successful.

Aside from CFA’s, which can still be effective, specific litigation funding, damage based agreements and compensation orders are all avenues which can be explored by those seeking to bring a claim. Stephensons is perfectly placed to assist in exploring funding options before bringing a claim.

For more information on commercial litigation funding, or to speak to one of our commercial solicitors, call 01616 966 229.