LASPO insolvency exemption to be lifted in April 2016
The Ministry of Justice has recently confirmed that from 1st April 2016, insolvency litigation will be subject to the costs provisions imposed by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO).
Last year, insolvency litigation enjoyed a reprieve from the effects of LASPO. Specifically those provisions prohibiting recovery of Conditional Fee Agreement (CFA) success fees and After the Event (ATE) legal expense policy premiums from Defendants.
The flexibility offered by CFAs and ATE policies enabled genuine insolvency office-holder claims to continue to be brought, even where an insolvency estate had cash flow issues. The threat of liability for CFA success fees and ATE premiums often proved effective in prompting settlement by Defendants.
It has now been confirmed that that the exemption from LASPO for claims by insolvency office holders will be lifted on 1st April 2016.
After that date, CFA success fees and ATE insurance premiums will no longer be recoverable from Defendants, meaning they will have to be paid from the funds which under the current system would have gone towards settling unsecured creditor claims.
The effects of this have been described as a licence for director fraud. Otherwise strong legal claims which are not of significant value may now not be commercially viable for liquidators and other office holders to pursue.
All CFA and ATE policies put in place before 1st April 2016 will continue to have ‘pre-LASPO’ recoverability. Be aware that when similar changes were enacted for other non-insolvency claims, ATE insurance policy providers stopped taking applications 3 to 4 weeks before the deadline. This is worth bearing in mind when bringing a claim.
What this means for you
Insolvency practitioners / office holders considering bringing such claims, should have them legally assessed as soon as possible and, if appropriate, put in place a CFA and/or ATE policy by the end of February 2016 at the latest.
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