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Funding Insolvency Litigation

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Conditional Fee Agreements & After the Event Insurance

Many Liquidators, Administrators and Trustees in Bankruptcy will be finding themselves in the situation where they have identified potential claims that could be brought in a particular case, but where they are not holding sufficient funds within that matter to be able to pay for further investigations into the potential claim and/or court proceedings.

This is becoming more and more of a common theme as directors of failing companies and individuals experiencing financial difficulties have, for varying reasons, moved assets, sold assets for less than their market value and paid certain creditors ahead of others.  Those directors and individuals will usually have drained bank accounts before becoming formally insolvent and, as the recession continues and potential third party purchasers for the remaining assets of the failed business or individual are unable to raise funds to purchase those assets, it is often the case that there are no available funds to pay for any potential claims to be pursued.

Historically, many of those claims would be left unprosecuted by the Insolvency Practitioner due to this lack of funding.  This was particularly so in cases where the prospects of success were debateable and there was a real risk that the Insolvency Practitioner may lose the claim and find him/herself with an adverse costs order being made against them in favour of the opposing party under the usual principle that the losing party pays the winning party's costs.

However, in more recent years the options available for funding such litigation and protecting the Insolvency Practitioner against possible adverse costs orders have developed.

Conditional Fee Agreements

Cases can be conducted by solicitors on a no win no fee basis (under a Conditional Fee Agreement ("CFA")).

Clarion has conducted cases under CFAs for many years and is continuing to develop this area of the practice.  As well as offering to conduct individual cases under a CFA, Clarion also offers Collective Conditional Fee Agreements ("CCFA"). 

The CCFA enables the Insolvency Practitioner to enter into one funding agreement with Clarion, under which all future cases that are suitable to be conducted under a no win no fee agreement can be funded.  This reduces the amount of time required to be spent by the Insolvency Practitioner in dealing with the funding documentation in each case.

After the Event Insurance

Various insurers have emerged into the insolvency marketplace offering insurance products specifically tailored to insolvency proceedings.  Those insurance policies protect the Insolvency Practitioner against adverse costs orders that may be made in those cases in which proceedings are issued.

Clarion has strong links with various insurers and is able to source suitable insurance policies for litigation undertaken by Insolvency Practitioners.

In addition to obtaining insurance to support cases funded by way of a CFA, Clarion can also source insurance policies to protect the Insolvency Practitioner from adverse costs orders in cases that are privately funded.

Clarion's Own Branded Insurance

Whilst most insurers will require a Counsel's opinion on the merits of a claim and will require that opinion to give a minimum prospect of success of 60%, Clarion is in the process of broadening its offering and the availability of such insurance protection to Insolvency Practitioners by developing its own branded insurance policies to support insolvency litigation. 

This product will bypass the current requirement for solicitors to obtain and provide the insurer with a Counsel's opinion and then having to await the decision of the insurer as to whether or not the case will be supported.

A Note of Caution to Insolvency Practitioners

In view of the funding options now available to Insolvency Practitioners enabling potential claims to be pursued, Insolvency Practitioners will need to be wary that they do not breach their statutory duty to creditors by failing to take advantage of those funding options and by failing to pursue and realise those potential claims wherever possible. 

 

Disclaimer: Anything posted on this blog is for general information only and is not intended to provide legal advice on any general or specific matter. Please refer to our terms and conditions for further information. Please contact the author of the blog if you would like to discuss the issues raised.