Insolvency trade body R3 has warned that ending insolvency litigation from the ‘Jackson’ legal aid reforms could cost creditors over £150m a year.
The government is currently planning to scrap exemption for insolvency litigation in April 2015, only two years after the measure was introduced.
An independent report, commissioned by R3, found plans would affect creditors’ claims of up to £300m which are pursued through the courts every year, including the pursuit of up to £70m that belongs to taxpayers and HMRC.
Approximately £160m is brought back to creditors every year, an amount that insolvency practitioners claim is increasing.
Phillip Sykes, deputy vice-president of R3, said: “Insolvency litigation is absolutely in the public interest, and it is absurd that the Government is considering making it all but impossible for such cases to continue. The ‘Jackson’ reforms were supposed to protect exactly this type of case.”
“The government’s only justification for ending the exemption is that it would make the ‘Jackson’ reforms consistent across the board, regardless of the consequences. It’s just lazy thinking.”
78% of insolvency practitioners’ average cases bring back up to £100k for creditors – these smaller cases could not proceed without the insolvency litigation exemption.
The vast majority (83%) of cases brought by insolvency practitioners settle before court. The report finds that almost 89% of these would not do so without insolvency litigation’s ‘Jackson’ exemption.
Sykes added: “Insolvency litigation returns money to creditors, and helps ensure businesses and banks remain confident about lending.
“It protects taxpayer funds, it stops directors making off with money that isn’t theirs, and it deters directors from even thinking about doing so in the first place.”