Member Article

Insolvency professionals welcome Leeds MP’s EDM calling

Insolvency professionals welcome Leeds MP’s EDM calling for a review of litigation plans leading to fewer fraudulent directors being brought to justice

R3, the insolvency trade body, has welcomed parliamentary work led by Greg Mulholland, Liberal Democrat MP for Leeds North West, culminating in the tabling of an Early Day Motion (EDM) calling for a review of proposals which will make it more difficult for insolvency practitioners to secure returns for creditors worth as much as £160m a year 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 in 2013. After campaigning from R3, the Government granted an exemption for insolvency litigation, but it is now not known when this exemption will end. Chair of R3 in Yorkshire, Adrian Berry, and other committee members in the region are calling for clarity and have enlisted the support of Greg Mulholland MP to urge the Government to carry out a formal review of the legislation prior to making an announcement before the end of the year.

Currently, insolvency practitioners undertake litigation on behalf of creditors against fraudulent directors with the costs funded from the assets of the insolvent company if there are any, or through no-win, no-fee arrangements. However, if the litigation costs are unable to be recovered (as would happen under the reforms) insolvency practitioners are unlikely to take on these cases, and the money would stay in the hands of fraudulent directors.

Mr Mulholland commented: “£160 million is estimated to be owed to businesses and taxpayers each year because of fraudulent activity by company directors. The public and business groups have expressed strong concern about creditors not getting that money back. It is a concern I share and would therefore ask ministers to urgently review this matter.”

Mr Berry, chair of R3 in Yorkshire and partner at Deloitte LLP, who has been leading the region’s campaign against the proposals, said: “We really appreciate Mr Mullholland’s support, he has tabled a number of parliamentary questions on the Jackson issue over the last month or so and the EDM is a very positive development in our campaign, giving MPs the opportunity to lend their voices to the call for a review.

“We are seeking a commitment by the Ministry of Justice to keep the exemption which we believe is in the public interest. Without a permanent exemption, it is feared that the Jackson Reforms will have the unwelcome effect of letting greater numbers of rogue directors off the hook. With many cases unlikely to be pursued, millions of pounds will remain in the hands of fraudulent directors at the cost of better returns for creditors. It will also put public funds at risk with the Government losing out on potential revenue.”

An independent report for R3 showed creditors could lose as much as £160m in total every year, including millions owed to HM Revenue & Customs, if the exemption is removed.

Mr Berry continues: “Many of our members are writing to their MPs urging them to sign this EDM and add to the pressure on the Government by demonstrating cross-party support for this issue. We undertook a similar campaign last January which resulted in 69 MPs signing an EDM to extend the exemption to the proposals. We hope that the Government will agree to undertake a review which will lead to a permanent exemption.”

The EDM coincides with a new letter to Justice Secretary Michael Gove calling for a permanent exemption. R3 has also announced that another three groups, the Association of British Insurers, the Bar Council and the Insolvency Practitioners Association, have joined seven other leading business group supporting its campaign for a permanent insolvency exemption (ACCA, the ABI, the Bar Council, the British Property Federation, the Chartered Institute of Credit Management, the FSB, ICAEW, ICAS, the Insolvency Practitioners Association, and insolvency trade body R3).

This was posted in Bdaily's Members' News section by Emma Kilmurray .