Business and accountancy groups have co-signed a letter to prime minister David Cameron, urging a permanent exemption for insolvency litigation from reforms introduced under the Legal Aid, Sentencing and Punishment of Offenders Act.

They estimate that changes to be ushered in by the act next April will cost business and HMRC £160m a year.

The direct appeal to Cameron (pictured) reflects frustration that months after insolvency trade body R3 raised concerns, the Ministry of Justice has failed to engage with the issue.

In the authors’ sights are changes that require success fees and after-the-event insurance premiums to be paid out of damages, rather than being recovered from the losing side. Many of the sums recovered are less than £50,000 – claims that are not viable without recovery of the ATE and conditional fee agreement elements.

The letter is signed by R3, the British Property Federation, the Institute of Credit Management and three accountancy bodies.

It says: ‘Insolvency litigation is a vital tool for recovering money from directors who have committed fraud, been negligent, or wrongly taken money out of a business.’

Changes to be introduced in April 2015, it adds, ‘will leave creditors, including HMRC and small businesses… out of pocket and will create a system that would see directors who have committed misconduct get away with their actions’.

Unless the reforms are scrapped, R3 president Giles Frampton said, ‘directors who misbehave’ would be ‘the big winners from the end of insolvency litigation’s Jackson exemption’. Creditors, including the taxpayer and small businesses, ‘will be the ones who lose out’, he predicted.

A Law Society spokesperson said: ‘We warned at the time of the bill’s passage that this would happen. It is yet another example of the way in which LASPO is actively preventing people from all walks of life, and even well-run businesses, from effectively enforcing their rights against those who infringe them.

‘We urge the government to listen to experts from business to drop these damaging reforms.’