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Posted by Lynne on December 17th 2015
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Justice Minister Lord Faulks has announced that the recoverability of success fees and After The Event insurance premiums (ATE) will be removed. IP’s now have a limited time to review potential cases, enter into Conditional Fee Agreements and obtain ATE cover (which may require Counsel’s advice).
As IP’s will be aware, the MoJ dropped plans to remove the exemption in April this year and the Government agreed that more time was needed. Despite the Government recognising that further time was required, IP trade body R3 state that at no time has the Government engaged in extending the exemption, nor has it carried out an impact assessment of what the end of the exemption would mean, and its effects on the wider business community.
Apart from the Insolvency Practitioners Association, the campaign against removing the exemption has been supported by Solicitors, the Bar Council, The ACCI, The Institute of Chartered Accountants of Scotland, The Association of British Insurers, The Chartered Institute of Credit Management, The British Property Federation, The FSB and The ICAEW.
The loss of this exemption will leave a massive black hole in pursuing insolvency litigation. Many cases will not be progressed as Defendants will seek security for costs to stifle actions, and will feel encouraged to defend weak litigation cases on what should be simple debt recovery actions. IP’s will be left in many cases being unable to fund disbursements which are included in ATE cover, with Court fees increasing this year to a maximum of £10,000.00 which is likely to increase the maximum fee to £20,000.00 on a simple debt collection of £400,000.00.
Rogue directors will consider they can act with impunity. Debtors will be encouraged to serve dodgy Defences. Ordinary business owners will lose out, and the failure of HMRC to recover money will also affect the ordinary tax payer.
The campaign to keep the exemption in place had been supported by research from Peter Walton of the University of Wolverhampton who has established that the exemption helps to retrieve approximately £480m for creditors each year, including a recovery of around £115m for HMRC against its’ claims of £240m. A total of £1b was pursued by Insolvency Practitioners for creditors during 2014.
The value of this exemption has continued to grow, as in the 12 months before July 2013, around £168m of creditors money was retrieved. According to the research, approximately 2,300 cases are conducted through Conditional Fee Agreements each year. The full report was expected to be published next year, but this now seems to be too late.
If there must be a change our view is that it would be preferable to extend the exemption to enable Defendants to also be able to recover success fees and ATE premiums, if they can persuade Lawyers and ATE providers that they have a good case. This would produce a level playing field for both IP’s and Defendants. As it stands, all IP’s can do is to act now whilst they still can in the best interest of creditors before it is too late!
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