At Francis Wilks & Jones we are specialists in assisting directors and insolvency practitioners in all aspects of commercial litigation and, particularly, insolvency claims.
Insolvency practitioners – conventionally appointed as either trustees in bankruptcy, or liquidators or administrators of insolvent companies – face the difficulty that they are often appointed in circumstances with little available assets to fund legal proceedings whilst at the same time have a statutory duty to creditors to maximise asset realisations, which may include pursuing claims for recovery of assets removed from the company or the bankrupt’s estate, or other breaches of the insolvency legislation and the companies acts.
These claims can often comprise the most valuable asset in the company or in a bankruptcy and, without any assets being available to fund such legal proceedings, the insolvency practitioner is in a very difficult situation.
Arrangements pre-6 April 2016
Historically, these problems were managed by instructing solicitors under the terms of a conditional fee agreement.
Dependant on the claim and the opponent’s legal representation, after the event insurance may have been taken out by the insolvency practitioner.
Historically, the uplift charge on legal fees under a conditional fee agreement and the premium due on an after the event insurance policy (where the claim was successful) could be recovered from the opponent as part of the insolvency practitioner’s legal costs.
From 6 April 2013 the recovery of these costs became prohibited for claims generally by an act of parliament. However, an exemption was granted temporarily to insolvency practitioners (who could continue to issue claims on this basis) but this expired on 5 April 2016. Accordingly, such costs are now only recoverable by insolvency practitioners in respect of any agreements entered into prior to 6 April 2016.
Solicitor funding arrangements available to insolvency practitioners
The removal of the ability to issue proceedings without a source of funding and, more importantly, without risk undoubtedly means that insolvency practitioner’s options, and the interests of creditors, has been incredibly prejudiced.
However, it is certainly not the case that there are no options remaining to an insolvency practitioner.
- we refer to our funding webpages dealing with arrangements that can be entered into between a client and their solicitor.
- these options remain applicable also to insolvency practitioners, although perhaps the most appealing option (in the absence of any funds available for the others) is a damages based agreement whereby the solicitor takes a percentage of the sum recovered by the insolvency practitioner.
Insolvency practitioners may also be in a position to minimise their cost exposure by paying ATE Insurance up front or by using damages based agreement insurance to assist solicitor funding.
At Francis Wilks & Jones we have comprehensive experience of dealing with these types of arrangements both with directors and with Insolvency practitioners, usually in their capacity as trustee in bankruptcy or liquidator.
Other options available to an insolvency practitioner
Otherwise, an insolvency practitioner may wish to consult a third party litigation funder to fund any such litigation proceedings arising from their appointment.
Dependant on the option taken, this will most likely also involve sharing the sum recovered with the funder, who would otherwise pay the solicitor’s costs and provide after the event insurance. The associated costs may be higher but may also provide more protection against risk.
- alternatively, the insolvency practitioner may seek to assign all or part of its claim with a view to gaining an immediate payment or, in the case of an assignment of part, a small payment plus a share of the judgement recovered.
- this again provides for higher costs but less risk and, most importantly, less of a requirement to be involved in the proceedings.
The option chosen by the insolvency practitioner is dependent on the nature of the claim, the prospects of success and the desires of creditors (and the insolvency practitioner’s view of the case).
At Francis Wilks & Jones we have years of experience in acting for insolvency practitioners and can certainly assist with the process of considering any funding arrangements or any claim that exists in an insolvent estate.
Please call any member of our commercial litigation team for your consultation now. Alternatively e mail us with your enquiry and we will call you back at a time convenient to you.
