Posted on the 6th March 2015

At Annecto Legal, we have long been concerned about the impact of the Government’s proposed ban on ‘no-win no-fee’ funding models for insolvency cases. This ban was a provision of LASPO 2012, scheduled to come into force this April. It would have made it much easier for insolvent businesses to resist claims made against them for unsecured debts.

Clearly our concerns, and those of the SME and legal community, have had an impact, because last week the Government announced that they were going to delay the implementation of the reforms. The current funding system will remain in place until there is a chance for further consultation; it looks like this will not happen until after the election in May, and there seems to be growing cross-party support to keep the current ‘no-win no-fee’ model permanently in place. The Government’s reason for its dramatic volte face was that it needed “more time” to come up with proposals that would help individuals and businesses deal with “the high costs of civil litigation”.

The costs of litigation for SMEs are indeed too high: this has become a huge problem, as our research shows. SMEs are shying away from valid claims, not because they don’t believe in them, but because they simply don’t feel they have the money to risk going after those who have harmed them. ‘No-win, no-fee’ cases are one of the few ways in which companies can pursue claims without needing to risk vast amounts of money, and we welcome the Government’s recognition of their continued necessity.

Many SME owners agree. Jon Welsby, the founder of Insolvency Assist CIC and the SME Alliance, says “The government U-turn is good news for SMEs who need accessible funding solutions for pursuing insolvency claims. The extension of LASPO enables small businesses to progress valid claims and retain their right to recover the relevant damages and litigation costs. This will make a real difference to those business owners pursuing cases against larger entities and Plcs.”

This decision represents a huge step in the right direction, and hopefully it will be followed up by a more SME-friendly approach to our court system. In particular, an end to current plans to dramatically increase court fees by as much as 600% would be another important way of helping SMEs get access to justice.

However, let’s not get ahead of ourselves. On yesterday’s announcement, we need to keep up pressure on policy makers to help SMEs deal with our system, particularly with an election coming up.