What problems does litigation cause for insolvency practitioners?

If you’re an insolvency practitioner (IP) striving to ensure that unpaid creditors recover as much of their debt as possible from insolvent companies, impending litigation can be a large question mark looming over realising debtor’s assets.

While the potential is there for large recoveries – particularly if the insolvency was a result of the behaviour of the directors’ or a dispute with a third party – there is always the risk of adverse costs, even with the strongest case.

As an IP, your focus is on the risk versus reward – mitigating the potential expensive legal costs against the ability to recover valuable assets for the benefit of creditors.

It is therefore understandable that rather than assume the considerable risk of litigation, it can be tempting to reach for the short-term benefits of selling a claim at a substantially reduced value or not pursing an action at all – especially if there are no funds available for lawyers and experts.

Insolvency litigation funding options

Insolvency litigation funding allows businesses and individuals with an insolvency case the opportunity to pursue it without having to worry about the associated legal fees. 

Most IPs will be familiar with terms such as CFA and ATE, and some will have come across third party litigation funding too. But very few would ever claim to be completely up-to-speed with the latest funding options that make life easier for IPs and can massively impact on recoveries.

But first the basics: Pursuing litigation under a conditional fee agreement (CFA) means asking law firms to defer their fees until the successful conclusion of a case, when the creditors, IP and lawyers can be paid from any recovery made.

After the event (ATE) legal expenses insurance protects the IP from the risk of having to pay the opponent’s legal fees in any unsuccessful litigation.

Third party funding in insolvency is most commonly associated with either acquiring the litigation rights or funding all of the legal fees in exchange for a share of the monies recovered.

Annecto Legal provides assistance to IPs to make sure that they enter into appropriate retainers with their legal advisors (see Stevensdrake V Stephen Hunt for the risks here: a liquidator personally liable for CFA costs of £1m) and to secure ATE and funding that meets the needs of the case.

Things to think about:

• does the third party funding extend to IP fees?
• is initial litigation finance needed to do further investigations or perhaps to get a QC opinion?
• what does the ATE insurance actually cover?
• does the litigation funder unfairly benefit from early settlement?
• or are funder’s returns staged so that creditors benefit from early settlement?
• does the ATE offer effective discounts for early settlement?

There is obviously a lot more than this to consider in any funding agreement, but Annecto Legal is well versed in assisting IPs and can guide you through each step of the process – making sure the best deal is achieved for all parties.

Why Annecto Legal?

The team at Annecto offer free advice to enable insolvency claims to be explored and, if applicable, progressed to the stage where they are funded and insured. Furthermore, we have access to a large network of specialist solicitors with experience in all areas of commercial litigation – major and niche alike.

Our services represent the best opportunity for insolvency practitioners to recover assets on behalf of creditors.

Are you an insolvency practitioner looking to explore a debtor’s litigation claim? Talk to one of our experts today.

Our Director, Mark Beaumont can be contacted by email mark.beaumont@annectolegal.co.uk