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ATE Insurance Premiums and CFA success fees will cease to be recoverable for Insolvency Proceedings as of April 2015

Legal media are reporting that Shailesh Vara (The Parliamentary Under-Secretary of State for Justice) has stated that the Government issued an impact assessment report in 2011 relating to the reforms set out in the Legal Aid Sentencing and Punishment of Offenders Act 2012. He says the report:

“…explained that while there may be a reduction in the number of cases brought where no win no fee conditional fee agreements are used, overall the LASPO reforms will tackle excessive costs. The Government does not propose to update the Impact Assessment in relation to insolvency proceedings.”

When asked what the future holds for insolvency proceedings, Shailesh Vara said:

“The LASPO reforms will apply to insolvency proceedings from April 2015. As provided in the Act, implementation will be by way of Commencement Order.”

We still do not have an exact date of the implementation, but it is thought that it will be 1st April 2015. This will cause huge disappointment to R3 who have been lobbying against implementation of the LASPO reforms in insolvency proceedings. The report, written by Professor Peter Walton, looks at the potential impact of LASPO on insolvency proceedings:

“CFA-backed insolvency litigation:

  • Involves claims of approximately £300m per annum
  • Realises an estimated £150-160m per annum
  • £50-70m relates to monies owed to HMRC.

Most of this money will be lost if insolvency litigation does not receive a permanent exemption from the LASPO Act because there are no viable alternatives to the current regime.”

The government has decided that the reforms which aim to tackle excessive litigation costs should apply to insolvency proceedings despite the arguments raised by R3 that this will discourage Insolvency Practitioners from litigating even where they have a strong case. The result is that IP’s will have to pay premiums and CFA success fees from the recoveries pot, rather than recovering from the opponent as part of costs.