Insolvency practitioners denied exemption from no-win no-fee claims

Creditors seeking insolvency advice to help them pursue a winding up order or retrieve debts from clients have been dealt a blow by a recent government decision.

The Justice Bill Committee has announced that it will not make any exemptions for insolvency practitioners in its clampdown on no-win no-fee claims.

In a nutshell, the decision would mean that creditors have to foot the bill for the professional help they receive in reclaiming what they are owed, Accountancy Age reports.

This effectively means that, even in a case where the insolvent party came up with the money, the returns for the creditor would be diminished as they would have to be used to pay for the assistance they have had.

Insolvency trade body R3 has been petitioning the Justice Bill Committee to make its members exempt from the changes to the Legal Aid Sentencing and Punishment of Offenders Bill.

However, it appears to have been unsuccessful, with the committee claiming it would not make any exemptions.

R3 president Frances Coulson explained that it is a blow for creditors and the UK taxpayer.

"Insolvency practitioners use 'no-win' 'no-fee' arrangements to recoup money back from 'dodgy' directors, who in many cases have taken money from small businesses and HM Revenue & Customs," she said.

"R3 is calling for the government to exempt insolvency litigation, so that taxpayers are not left out of pocket."

According to the trade body's 23 case studies on the topic, returns to creditors could reduce by up to £3.6 million as a result of insolvency practitioners not pursuing claims and reduced payouts.

Meanwhile, R3 recently reported that personal bankruptcies from business debts in the construction sector shot up by 24 per cent in the first three months of 2011.

It noted that a 17.5 per cent increase was recorded in the wholesale and retail sector, with a 13 per cent rise overall.