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Dear Liquidator

Dear Liquidator

Published: 29 May 2015

I’m Afraid There is No Money... Good Luck!

One of the most memorable features of this election campaign was David Cameron waving around the notorious Treasury letter left by Labour's Liam Byrne to his successor as Chief Treasury Secretary, David Laws in 2010.

In the world of insolvency, it stands to reason that liquidators (or other officeholders) when appointed over an insolvent company have to face this situation time and again. However, insolvency does not mean "no money", it simply means not enough money to pay all creditors in full or, on time. If directors are complying with their duties there should usually be something left, whether in the form of cash or realisable assets.

If you have ever lost money as a creditor to an insolvent company or individual, then you would rightfully wonder what was going on if, as is often frequently the case, there is nothing left.

Which is why R3, the Association of Business Recovery Professionals (the trade body for the insolvency profession), is lobbying the Conservative government to preserve the ability of officeholders to effectively pursue directors for wrongdoing, thus protecting millions of pounds of creditors’ money each year.

Liquidators and creditors have suffered as a result of the rise of the personal injury market (‘where there is blame, there is a claim!’) which became notorious for incurring disproportionate costs to recover relatively small sums through the use of ‘no win no fee’ arrangements. As a consequence the Government decided to limit the sums recoverable from the losing party under such arrangements which meant that the claimant had to pay various legal costs out of his or her damages.

Unfortunately, the Ministry of Justice applied the rules to all types of litigation which meant that liquidators faced with no money and claims against directors were faced with having to pay out ‘no win no fee’ costs from their recoveries rather than being able to recover these separately from the directors in question. After vigorous lobbying R3 managed to secure an exemption from the effect of the new rules to officeholder claims until February this year when just a few weeks before the expiry of the reprieve the Government extended it indefinitely but temporarily, to be reviewed later this year.

R3 is continuing to lobby the Government to make the exemption to officeholders permanent and has calculated that allowing officeholders to recover their costs in addition to damages from directors (and others) could keep up to £160M per year out of the hands of "dodgy" directors and their associates.

Perhaps there is scope to wave a ‘Dear Liquidator…’ letter at the Government to assist it in its decision making process!