By

There has been much talk in the Insolvency litigation community over the fact that the Ministry of Justice (MOJ) is due to make a statement on the future of the insolvency exemption by the end of this year. In February the MOJ backed down from ending the exemption in April 2015, but indicated they would consider an appropriate way forward later this year.

Insolvency cases are different from many other types of civil litigations because in most instances an Insolvency practitioner can only justify taking on the risk and the expense of litigations where a CFA enables them to recover the bulk of their own costs, and an ATE Policy removes the risk of adverse costs and disbursements associated with a loss. CFA’s and ATE policies allow the IP to take the case forward without significantly reducing the assets available to be distributed to the creditors. If the Government does away with the recoverability of the CFA uplift and the ATE premium it removes a significant incentive for the IP to litigate on behalf of creditors.

While the aim of LASPO was to crack down on the rising cost of civil litigation and to better protect public funds and the public interest, it will undoubtedly have some undesirable side-affects when applied to Insolvency cases. Many contentious insolvency cases would be likely to go unpursued – resulting in many debts to creditors going unpaid.

TheJudge stands with R3 and other Industry groups regarding the recoverability of CFA’s and ATE Premiums for Insolvency cases. Having seen first-hand the effect of LASPOA on other kinds of civil litigation, post-April 2013 we agree that many IP’s will be left without a way to pursue fraudulent directors where CFA’s and ATE insurance are no longer economic. While we hope to see the exemption remain in place in the New Year we recommend that IP’s and firms be prepared for what may be an inevitable end to the exemption.

What Can You Do?

  • Call Your MP – As part of their campaign for a permanent exemption, R3 is encouraging members to call their MP’s and urge them to sign and support the Early Day Motion (EDM).  The EDM calls for a review of funding of insolvency litigation before an announcement is made by the government before the end of the year.  A Template letter and briefing are available here on R3’s website.
  • Prepare for the Worst – Don’t Delay in Making an Application for Current Cases – If you have insolvency case requiring ATE insurance or litigation funding, please contact our offices. Our experienced broking team can assist by offering market searches and negotiating bespoke policies for one-off cases. We can source cover for cross undertakings in damages, additional cover for security for costs and negotiate competitive quotes based on the individual case. If a deadline is announced, you will have a much better chance of getting a bespoke quote suited the case early on, when underwriters are not under extreme time-pressures.
  • Use the Team at TheJudge Research Insolvency Schemes – We realise that not all your cases may be at the stage where enough information is available to make an application for ATE insurance now. You may feel caught between a rock and hard place, as making an application now would be unlikely to result in a quote (due to lack of information), but leaving it too late may result in insurers turning the case away, due to underwriters being at workload capacity in rush to a deadline.  This is a legitimate concern, as in the pre-April 2013 LASPO rush, we saw insurers closing their doors to new business due to lack of underwriting resources. A clever way of dealing with this dilemma is to have the team at TheJudge arrange a scheme with an individual insurer now.  A scheme ensures that when your cases are ready to be reviewed (we recommend sending cases in around the time a letter of claim or draft letter of claim can be written), they will be given priority by underwriters, regardless of the volume of one-off business they may be receiving at that time.  If we do experience another rush to a deadline – these schemes could be invaluable for firms. At TheJudge we have a number of schemes available for firms, some schemes even offer additional benefits such as lower pricing of premiums, waterfalls to protect the law firm and IP’s fees should there be a shortfall in expected recovery, and other beneficial policy terms.