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Success Fees and ATE Premium Recovery

Success fees arising from CFAs (Conditional Fee Agreements) and premiums for ATE (After the Event) insurance continue to be recoverable in insolvency litigation.

The Legal Aid, Sentencing and Punishment of Offenders Act 2012 (Commencement No. 5 and Saving Provision) Order 2013 provides that CFA success fees and ATE insurance premiums cannot be recovered from the losing side in litigation generally, but proceedings brought by a liquidator, administrator, trustee in bankruptcy, company in administration or company in liquidation are exempt.  This means that creditors are not forced to suffer these costs.

So far, so good.  But what we don’t want is for the Ministry of Justice to produce a new statutory instrument in 2 years time withdrawing that exemption (which is what they have indicated they will do).

The recovery ban came out of the Jackson reforms of civil litigation funding and costs, driven by the dramatic rise in recent years of personal injury claims funded on such a basis.  Insolvency is a very different type of litigation and merits the special treatment of the exemption.

Insolvency actions are frequently against the directors who depleted the company’s assets in the first place and it must be right that provision is made for the risk of the office holders’ proceedings, especially in no asset cases, to be rewarded at the expense of the people who were liable for the loss to creditors.  For the avoidance of doubt, this issue is nothing to do with insolvency practitioners’ fees and relates only to the legal costs of litigation.  The insolvency practitioner in a no asset case is always at risk for his own fees when litigating.

If the exemption is not extended, it will make no asset insolvency litigation both less likely and less cost effective, which is clearly not in creditors’ interests.

Another benefit of the exemption is that it provides a significant incentive for defendants to settle proceedings before the costs of a trial are incurred.  This reduces the costs and risks to the insolvent estate and again is in creditors’ interests.

My suggestion is that over the coming months insolvency practitioners make a point of demonstrating the benefits of being able to use these exemptions in the interests of creditors so that we can satisfy the Ministry of Justice about why the exemption should continue indefinitely.

 

 

Date: 24th January, 2013
Author: Chris Laughton

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