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Jackson Reform Insolvency Litigation exempt in the Short term

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As you may be aware the government has been undertaking a review of litigation funding.

It announced  in late 2011 that it intended to abolish the successful parties ability in litigation to recover success fees under conditional fee agreements (“CFA’s”) and after the event insurance (“ATE”) premiums from the losing party.

The announcement caused great concern for the insolvency profession as the vast majority of litigation in insolvency matters is funded by way of CFA’s backed by ATE due to there usually being only limited or no funds available to pursue claims. The proposal posed a real and serious threat to the insolvency practitioner’s ability to bring claims against errant directors or other third parties and it was feared that they would be discouraged or prevented from undertaking litigation to recover assets for the benefit of HM Revenue and Customs (“HMRC”) and other creditors.

As a result R3, the trade body that represents the insolvency profession, has lobbied the government for insolvency litigation to be a special case and excluded from the proposed reforms.

The government has now announced that such litigation will be excluded from the reforms until 2015. It would appear that the government has recognised that insolvency cases bring in substantial revenue for HMRC and other creditors. The government’s intention is to allow time for those involved in insolvency litigation to implement alternative arrangements by allowing cases to be continued.

However, the news, although welcomed by insolvency practitioners, falls short of the full exemption that was hoped for and consideration will have to be given to the ability to fund cases following 2015 if the exemption is not further extended. 

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