Rogue directors to benefit from reforms - R3
A greater number of fraudulent directors will get off the hook if the government presses ahead with plans for a new regime of insolvency litigation, trade body R3 has said.
R3 is campaigning against proposals which will make it more difficult for insolvency practitioners to use the courts to secure returns for creditors from unscrupulous directors.
Changes to 'no-win, no-fee' rules, known as the Jackson reforms, which mean that claimants now have to pay a larger proportion of legal costs, came into force last year.
While the government granted a two-year exemption for insolvency litigation, this is due to expire in April 2015 and R3 is urging the government to abandon plans for a new regime of insolvency litigation.
"Crucially, this type of funding is often the only way creditors can afford to pay for court cases to retrieve money from rogue directors that have wrongly taken money out of a failed business," R3 Midlands chairman Richard Philpott, a partner at KPMG in the region, said.
An independent report for R3 showed creditors could lose £150m to £160m in total every year, including millions owed to HM Revenue & Customs, if the exemption is removed.
"Quite rightly the government has stressed the importance of cracking down on directors who misbehave, but it's these directors that will be the big winners from the end of insolvency litigation's exemption. Creditors – including the taxpayer and small businesses – will be the ones who lose out.
"The government's commitment to ending 'no win, no fee' is misguided. The decision flies in the face of the available evidence and there has been no impact assessment on insolvency litigation.
"Where insolvency is concerned, 'no win, no fee' is in the public interest: it keeps legal costs down, and it protects public funds. It makes no sense for the exemption to end.
"Without 'no win, no fee' funding, insolvency litigation will become unaffordable for all but the largest creditors. Rogue directors won't believe their luck."