The proposed end of insolvency litigation’s exemption from the Legal Aid, Sentencing, and Punishment of Offenders Act (LAPSO) has been challenged by an Early Day Motion tabled in Parliament.
MP’s have thrown their support for a review of the decision to end the exemption before the Act comes into force in April, with 22 signatures of support recorded as of 14 January, primarily from the Labour party.
Giles Frampton, president of insolvency trade body R3, has also supported the proposal.
Frampton said: “The end of insolvency litigation’s exemption from the Legal Aid, Sentencing, and Punishment of Offenders Act would have a detrimental effect on creditors, including small businesses and the taxpayer.
“With the exemption coming to an end in April, parliament and Government are running out of time to prevent misbehaving directors from benefitting at everyone else’s expense.”
The motion was tabled by Mary Glindon (Labour, North Tyneside) and sponsored by Grahame Morris (Labour, Easington).
Insolvency litigation is currently exempt from the ‘no-win, no-fee’ legal funding introduced by the Act in 2012.
A report from the University of Wolverhampton last year found that insolvency practitioners are pursuing up to £300m of creditor funds using the ‘no-won, no-fee’ funding – £160m is returned to creditors from rogue directors every year.
Frampton said: “If the government presses on, bad behaviour by directors will be harder to reverse and up to £160m of creditors’ money will stay in the wrong hands every year.”