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Insolvency exemption to the Jackson Reforms ending?

If the insolvency exemption to the Jackson Reforms comes to an end in April 2015 as the Government has indicated, creditors will lose out because the threshold for economically viable litigation of insolvency claims will rise.  There will be less litigation, less settlement and fewer claims, especially in no or low asset estates.  It will be bad enough that in cases with assets creditors will bear the cost of the risk of losing, when almost by definition the action will be against a party responsible for the creditors’ losses – the creditors lose twice!  Worse however will be the low asset cases, where ending the exemption unconscionably invites the profession to bear all the risk.  Larger claims will still be pursued, but the cost to the creditors who cover the risk will significantly reduce overall returns.

Professor Peter Walton of the University of Wolverhampton in a paper entitled “The Likely Effect of the Jackson Reforms on Insolvency Litigation – an Empirical Investigation”, concluded that “…. there do not appear to be any viable alternatives to the current insolvency litigation regime which are capable of achieving the same level of return to creditors and ensuring those guilty of bad behaviour continue to be brought to justice”.  He also noted in his conclusions the observations of the Department of Business Innovation  and Skills that “ ….often, cases are only taken forward on a conditional fee arrangement basis.  This option may be less viable in insolvency cases after April 2015” and “ …if the liquidator does not have sufficient funds to pursue the [wrongful or fraudulent trading] claim, there will be no way of securing financial redress under these actions for the creditors, however strong the claim”.

After three years continuing to lobby the Government to reconsider removal of the exemption, at the time of writing R3 members are encouraging their MPs to sign an early day motion that removal of the exemption be reconsidered.

 

 

Date: 2nd February, 2015
Author: Chris Laughton

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