Premium Credit has withdrawn its threat to take legal action to force Independent Insurance's personal lines policyholders to pay their loans.

In late June, Premium Credit wrote to policyholders to tell them they had a legal obligation to pay their premiums, although the insurance became worthless upon the collapse of Independent.

"We have sympathy for you in your present predicament, but the fact that IICL is in provisional liquidation does not remove your legal obligation to repay your loan to PCL," the letter said.

"In the event of non-payment we will have no option but to take appropriate legal action to recover the sums."

However, a Premium Credit spokes-man said the company was in discussion with Independent's liquidators Pricewaterhousecoopers and had discovered it was likely the Policyholders Protection Board (PPB) would pay the outstanding monies.

"We're confident that, on the basis of these negotiations, it will not be necessary to pursue the personal lines customers for the outstanding balances," he said.

The spokesman said commercial lines customers were still legally bound to pay their loans because they were not covered by the PPB.

The British Insurance Brokers' Association and the Creditors of Independent Insurance Group (CIIG), plus an independent group of brokers, have taken legal advice from Terence Mow-schenson QC.

The CIIG's lawyer Stephen Alexander wrote to Premium Credit about the issue last week and the groups are expecting definitive advice on their legal position by the end of the week.