Legal costs up to Trial
Directors faced by a Disqualification Claim that has been issued should ensure they have rapid and accurate advice on their position immediately.
Where previously the Director (or his instructed solicitors) have been negotiating, perhaps with the Insolvency Service or solicitors instructed to act on behalf of the Secretary of State (who the Insolvency Service represent) then the Director should perhaps already know if s/he is intending to defend the Disqualification Claim.
It is vital that a Director understands the risks and potential costs of Disqualification Proceedings through to trial before deciding to proceed with a defence of the Disqualification Claim they face.
Liability for Legal Costs
As with all litigated claims, the party who is successful in the litigated proceedings also benefits from an Order that their opponent pay their legal costs.
Accordingly a Director, whilst paying his solicitor’s (and barrister’s) own legal costs through to trial, will also have to pay similar costs again to the Secretary of State if a Disqualification Order is made.
Variation to Costs Order
Whilst it will not affect a Director’s potential total liability, litigation proceedings are not straightforward and often there are applications and Orders made for varying reasons throughout the proceedings, which may alter the end result on costs.
For example, where the Secretary of State seeks to amend the Disqualification Claim then the litigation procedure provides that the costs of the amendment needs to be borne by the amending party (which in that scenario would be the Secretary of State).
Other examples where costs orders may be made so as to affect the costs risk at trial could include failed applications for summary judgment or strike out and where requests for information (by the Director) are contested without success.
These are commonly referred to as interim proceedings and all can lead to costs orders which conflict with the costs order made at trial.
Changes in Disqualification Period
The Secretary of State does not seek a specific disqualification period as part of the Disqualification Claim. The period of disqualification is a matter for the Court’s discretion upon hearing the evidence.
However, as part of the pre-issue proceedings the Secretary of State will communicate under cover of their section 16 letter the disqualification period sought and this will normally be insisted on during negotiations (including those occurring whilst the disqualification proceedings are ongoing).
On this basis there can be a protection available on costs to offer a lower period of disqualification, on the basis that if this offer was rejected yet the period awarded by the Court at trial was lower, then the Court may agree that the Secretary of State should pay the consequential legal costs incurred in the proceedings after the offer was rejected.
Alternatively, where a lower period is accepted then the negotiations on costs will have to bear in mind the fact that if this lower period had been offered pre-issue, proceedings may not have been necessary.
However, it remains the rule that a disqualification undertaking offered during litigated Disqualification Proceedings will generally result in the Director paying the Secretary of State’s legal costs to date.
At Francis Wilks & Jones we have considerable experience of Director Disqualification proceedings and advising Directors on the above considerations and the risks of litigated disqualification proceedings.
Please call any member of our Director Services Team for your free consultation now on 0207 841 0390. Alternatively email us with your query at firstname.lastname@example.org and we will call you back at a time convenient for you.