Legal Aid, Sentencing and Punishment of Offenders Bill

Yes, or the other place. The noble Lord, Lord Bach, pointed out something that I think should not be overlooked: in the 1995 order that introduced CFAs, insolvency litigation was recognised specifically, along with personal injury litigation, as a category to which CFAs should apply. The one principle—perhaps it is not so much a principle as a rule—that underpins the Jackson report is that no cap fits all, whereas the Government’s approach seems to be that they have a package that applies to everything, regardless of what it is. That is not the approach of Lord Justice Jackson, who was very careful to distinguish between various areas in his report. Insolvency litigation is a category that should be considered because of the particular features that affect it. What is insolvency litigation? Insolvency practitioners undertake litigation on behalf of creditors against company directors or third parties whose actions have caused serious harm to a business. This includes taking money out of the business for personal use, concealing assets and committing fraud. In some cases, these actions—of directors and third parties—have led to the business’s failure. The insolvency practitioner, who is brought in to deal with the disaster that has occurred, has a legal duty to maximise the returns to creditors. In cases where directors have acted improperly, this may involve undertaking litigation to return money rightfully owed to creditors, including the business community and Her Majesty’s Revenue and Customs. Without the use of litigation, directors could get away with dishonest practices and businesses would lose money. In insolvency situations, a company by definition has no money. Consequently, there are no funds available to the insolvency practitioner, who is trying to clear up the mess, to pay the legal costs involved in pursuing litigation. The creditors’ only realistic hope of recouping money owed to them is for the insolvency practitioner to engage solicitors on a conditional fee arrangement. In addition to this, insolvency practitioners may be personally liable for costs incurred as a consequence of litigation and therefore require protection with ““after the event”” insurance. As the system currently exists, the success fees under a CFA and the ATE insurance premiums are recoverable from the defendant if a judge, on the merits of the case, considers them to be liable. What are the impacts of this? First, let us consider the impacts on the business community. The current system is particularly helpful in insolvency litigation because it allows insolvency practitioners to maximise the assets available for distribution to creditors. If the success fee and ATE insurance premium were instead to be borne out by the insolvent estate, it would substantially reduce the amount of money returned to creditors. So the proposals here would mean that the defaulting directors or fraudulent third parties who caused the failure of the business would escape the burdens of success fees and insurance premiums, and that would reduce the funds available to pay the genuine creditors of the insolvent company. At a time when businesses are struggling, it would seem counterproductive to implement measures which would reduce their returns. In addition to lost revenue, the business community would also suffer, as the Government’s proposals would discourage an insolvency practitioner from taking action against a delinquent director. Given the considerable risks involved in insolvency litigation, an insolvency practitioner will only commence litigation on advice and once satisfied that it is economically justifiable for the creditors. Generally speaking, these people are not carrying out risky litigation; insolvency practitioners are going after the people who owe money or who have defrauded the company for which they were acting. The trade body for insolvency professionals analysed a sample of 23 case studies where insolvency practitioners undertook litigation against a director or third party, using CFAs and ATE insurance. The trade body’s assessment was that, if the Government’s proposals were to go ahead, the total impact on creditors in the 23 cases analysed would be a loss of £3.6 million—a 47 per cent reduction in returns to creditors. That would be the effect on the business community. Her Majesty’s Revenue and Customs is the largest unsecured creditor in formal insolvencies in England and Wales. It is the single largest beneficiary of the ability of an insolvency practitioner to avoid dilution of returns to creditors by the recovery of success fees and ATE premiums from unsuccessful and fraudulent directors in litigation. So it benefits the Revenue to keep the current system in place, and it is counterproductive to implement measures that will remove this revenue. The present system is a real and tangible benefit to society and to the business community. Not only does it ensure that delinquent directors do not get away with sharp practice, it also increases the returns available to creditors, including the Revenue and business community. Amendment 135, which is the main amendment that we have put down, seeks an exclusion from the general rule so that a cost order may include provision requiring the payment of fees payable under a conditional fee agreement, which provides for a success fee in proceedings by a company being wound up or entered into administration; proceedings brought by a person acting as liquidator or trustee of a bankrupt’s estate; and proceedings by a person acting as an administrator under the Insolvency Act. This is a benefit to the business community and to the Revenue, and I wait to hear why the Bill proposes to take away those advantages for no apparent gain. I beg to move.