Insolvency litigation is a complex area of law requiring specialised legal expertise and a thorough understanding of the intricacies of insolvency law. Funding for insolvency disputes also benefits from expert knowledge and the ability to navigate a fast-moving sector with a wide range of options.

The assignment model has become something of a go-to for a lot of IPs, although giving up control won’t always be the best option for creditors, or indeed the IP or solicitors either. The assignment model is something we often suggest for lower-value claims, and we always approach a range of funders to secure a range of options.

In some instances, it may be better to consider options such as a conditional fee agreement (CFA) working alongside after-the-event (ATE) legal expenses insurance and some funding for disbursements. For other cases a more comprehensive funding solution might be appropriate, but with control being retained by the IP, rather than the claim being assigned.

Given the professional obligation on insolvency practitioners we recognise the importance of knowing which options are best for different disputes, and the need to explore the market to secure value for creditors.

Examples of disputes that lead to insolvency litigation

Insolvency litigation disputes can arise from various situations during insolvency proceedings. Listed below are some examples of common disputes that may lead to claims:

• Fraudulent transfers: Creditors may initiate insolvency litigation if they believe that a debtor has transferred assets to another party with the intent to defraud or hinder creditors. These claims seek to recover the transferred assets for distribution among the creditors.
• Preferential payments: Creditors may challenge certain payments made by a debtor to specific creditors shortly before the commencement of insolvency proceedings. These claims argue that the payments unfairly favoured certain creditors over others and seek to recover the funds for equal distribution.

• Breach of fiduciary duty: Insolvency litigation may arise when directors or officers of an insolvent company are accused of breaching their fiduciary duties. Creditors or insolvency practitioners may bring claims against these individuals for mismanagement, fraud, or self-dealing, seeking damages on behalf of the company or the creditors.
• Disputes with regulatory authorities: Insolvency proceedings often involve interactions with regulatory authorities, such as tax authorities or financial regulatory bodies. Disputes may arise regarding compliance with regulatory requirements, tax liabilities, or the enforcement of specific regulations.
• Objections to restructuring plans: In the context of corporate insolvency, stakeholders such as creditors or shareholders may challenge proposed restructuring and insolvency plans. These disputes may involve issues like the fairness of the plan, valuation of assets, or the treatment of different classes of creditors. Claims can be filed to seek modifications or alternatives to the proposed plan.
• Actions relating to redundancy: Employees who are made redundant in an insolvency situation may have legal rights and entitlements that need to be addressed. The main legislation governing redundancy rights in the UK is the Employment Rights Act 1996. The Act provides protections and procedures for employees who are made redundant, including requirements for consultation, notice periods, and the right to receive redundancy payments.
• Group actions: Group actions refer to legal proceedings initiated by a group of individuals or entities who have similar claims or interests against a common defendant, typically a company that is in insolvency or facing financial difficulties. These group actions are also known as collective actions, representative actions, or class actions.

These are just a few examples of the types of disputes that can lead to insolvency litigation claims. The specific circumstances and legal issues involved in each case can vary significantly, highlighting the complexity and diversity of insolvency litigation.

Funding insolvency litigation

If you are pursuing insolvency litigation, legal costs can escalate quickly. Therefore, it is essential that you are aware of the funding options that are available to you. Listed below are some of the cost-effective options for funding insolvency litigation.

• Conditional fee agreements – Conditional fee agreements (CFAs), also known as ‘no win, no fee agreements’, are a type of funding arrangement that allows individuals to pursue a claim without paying legal fees upfront. Under a no win no fee basis, the law firm agrees to take on the case and only charges a fee if the case is successful. If the case is unsuccessful, the client does not have to pay these legal fees.
• Contingency fee agreement – Some insolvency litigation solicitors may offer to take on an insolvency dispute claim on a contingency fee basis, which means that they will only charge a fee if they are successful in securing a financial settlement or damages. The fee payable to the solicitor is usually a percentage of the amount recovered, and if the case is unsuccessful, the law firm will not charge a fee.
• Assignment – Some types of dispute can be assigned to a third party, usually for an upfront payment and a share of recoveries (after costs). This model can be useful on smaller cases when the ATE + CFA model would not deliver value. But giving up control can sometimes be costly, especially on larger disputes.
• After the event insurance – After the event (ATE) insurance is a type of insurance that can provide cover for legal costs in the event that a case is unsuccessful. This option can be particularly useful in cases where the outcome is uncertain, and the costs of losing a case could be significant. ATE insurance is often used with conditional fee agreements and contingency fee agreements.

• Third party litigation funding – In some cases, third party litigation funders may be willing to provide funding for an insolvency dispute claim in exchange for a percentage of any financial settlement or damages awarded. This option can be attractive for individuals who cannot afford to pay for legal fees themselves but have a strong case. ATE insurance is often used in conjunction with this type of funding.

How can Annecto Legal assist?

At Annecto Legal, we assist a wide range of clients in finding the appropriate insolvency litigation funding and insurance.

The preference is always to find a suitable settlement in a reasonable timeframe, but the best way to achieve this is to negotiate from a position of strength. Having the best insolvency litigation solicitors and being fully funded gives you that strength and forces your opponent to the negotiating table.

If you are in the process of pursuing or defending an insolvency dispute and want to find out whether you’ve got a claim, then contact Annecto Legal now.