Will litigation funding replace CFAs in lower value cases?
Insolvency litigation underwent a sea-change this week as its exemption from the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) finally came to an end.
The government’s decision to end the exemption means that successful claimants with conditional fee agreements (CFAs) entered into after 6 April will no longer be able to recover success fees or after-the-event insurance premiums from the losing party.
It is a decision that insolvency litigators have fought hard against. They argued that insolvency litigation returns millions of pounds every year to small businesses and taxpayers owed money by negligent or fraudulent directors. The Association of Business Recovery Professionals, R3, led a particularly vociferous campaign against it, arguing that about £150m of creditors’ money could be lost without the exemption since court cases would become uneconomical.
Litigation funder Augusta Ventures’ strategic engagement director, Jeunesse Edwards, predicts that litigation funding will be used to fill the gap. Augusta would fund the case, including legal fees and insurance premium, in return for a share of the damages.
Weightmans partner Dominic Vincent says: “We think that lawyers will remain willing to support the higher value cases through the use of CFAs, because in those cases the recoverability of the success fee and policy premium is less of an issue.
“However it is likely that we will see a decline in solicitors being willing to conduct lower value cases under the traditional CFA model. The gap in the market is therefore likely to be filled by litigation purchasers who will take assignments of claims from insolvency practitioners and pursue them for their own benefit.”
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