Insolvency claims

Insolvency claims

31 December 2015


Insolvency practitioners (IPs) often take on estates that have good legal claims against deep-pocketed defendants, but with little or no money available to pursue litigation. Therefore the need to be familiar with all funding products available in the market, in particular third-party funding from professional funders like Woodsford Litigation Funding has never been more important.


In the past few years, IPs have had privileged access to solicitors and barristers acting on fully conditional fee agreements, and to after-the-event insurance coverage. That privileged access may soon be coming to an end.


Conditional fee agreements (CFAs) provide that if a litigation case is lost the lawyer receives either no fee or a “low fee”, but if the case is won the lawyer receives a success fee in addition to his ordinary costs.


After-the-event (ATE) insurance covers a claimant's risk of adverse costs, i.e. the risk that, if the claimant loses the litigation, he will be ordered to pay the other side's costs.


In April 2000, successful parties became entitled to recover from the other side (in addition to their ordinary costs) both the CFA success fee and the ATE premium. The success fee could be up to 100% of the ordinary costs. The ATE premium could on occasion amount to a similar sum. In other words, if a defendant lost at trial, he would likely be ordered to pay the claimant’s legal costs, plus the CFA success fee, plus the ATE premium. This meant that, where CFAs and ATE were available to a claimant, IPs could potentially proceed in litigation with little downside to the estate, but with huge potential downside to the defendant.


Following recommendations by Lord Justice Jackson, however, in April 2013 Parliament abolished the recoverability of CFA success fees and ATE premium by the winning party from the losing party, by enacting sections 44 and 46 of Legal Aid, Sentencing and Punishment of Offenders Act 2012. By written ministerial statement on 24 May 2012 the Parliamentary Under-Secretary of State for Justice announced that the implementation of sections 44 and 46 in relation to insolvency litigation would be delayed until April 2015. The stated purpose was to allow time for insolvency practitioners to adjust to the changes and to make alternative arrangements for litigation funding.


The Association of Business Recovery Professionals (R3) campaigned for an extension of that exemption, following which, on 26 February 2015, the Minister of State for Civil Justice and Legal Policy accepted that insolvency practitioners needed more time to prepare for the changes, and stated that the Government would therefore delay commencing sections 44/46 for insolvency litigation “for the time being”.


A temporary reprieve.


In a speech on 16 October 2015, Lord Justice Jackson stated that the continuation of the exemption is no longer justified. In short, he stated that the insolvency profession has had “more than enough time to prepare for the abolition of the recoverability of CFA success fees and ATE premium.” One of the reasons stated by Lord Justice Jackson for such a conclusion was that: "In larger cases IPs will be able to take advantage of third party funding, which is a new arrival on the litigation scene". Woodsford Litigation Funding is one of the most experienced of the new arrivals.


When Jackson speaks, the Government listens. It is now very likely that CFAs and ATE alone will become a less attractive funding option for IPs. That is where Woodsford Litigation Funding comes in. We can tailor funding packages for IPs, either alongside, or as an alternative to, CFAs and ATE, that effectively mitigate the inherent risks of litigation.


On 17 December 2015, the Government announced that the temporary exemption for insolvency proceedings that allowed the recovery of conditional fee agreement (CFA) success fees and after the event (ATE) insurance premiums from losing opponents, is to end.


Please contact a member of our team if you would like further details on how we may assist you in progressing your claim.