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A legal change which could have allowed rogue company directors to walk away with £160m a year of creditors’ money has today been put on hold – just a month before it was due to come into force.

The government decision announced this morning comes after 15 North West MPs signed an Early Day Motion calling for the change to be reviewed. It also follows a campaign by seven business bodies including the insolvency trade R3, the Federation of Small Businesses and the British Property Federation.

The change would have meant that, from April, insolvency practitioners would no longer have been able to use ‘no win, no fee’ arrangements to pursue court action against directors of failed businesses on behalf of creditors. According to R3, that would have allowed many directors guilty of fraud or negligence to walk away scot free. The decision means ‘no win, no fee’ arrangements can continue for the time being, with the situation to be reviewed later in the year.

Richard Wolff, North West chair of R3 and Head of Corporate Recovery and Insolvency at law firm JMW, led the regional campaign. He said: “We are absolutely delighted by the government’s decision and would like to thank all the MPs and others who backed us in our call for a review. Support has been particularly strong here in the North West.

“Without ‘no win no fee’ arrangements, it would be impossible to fund legal action effectively following a business failure. We are talking about cases involving directors who have committed fraud, behaved recklessly or taken off with the money that is owed to suppliers and other creditors, many of them small firms.

“The decision is good news for small businesses – and a big boost for the fight against business fraud and malpractice.”

Independent research by the University of Wolverhampton found that £160m a year is successfully returned to creditors through the use of no win, no fee arrangements.

Altogether over 60 MPs signed the Early Day Motion. The North West MPs include Joe Benton, MP for Bootle; David Crausby, Bolton North East; Rosie Cooper, West Lancashire; Tony Cunningham, Workington; Bill Esterson, Sefton Central; Frank Field, Birkenhead; David Heyes, Ashton-under-Lyne; George Howarth, Knowsley; Mark Hunter, Cheadle; John Leech, Manchester Withington; Gordon Marsden, Blackpool South; Liz McInnes, Heywood and Middleton; Steve Rotheram, Liverpool Walton; Graham Stringer, Blackley & Broughton; and Dave Watts, St Helens North.