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, 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 litigation risk even with the strongest case. As an IP, your focus is on the risk versus reward – mitigating the potential expensive cost of litigation 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.
What options are available to insolvency practitioners undertaking legal action on behalf of creditors?
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 solicitors 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 Stephensdrake 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 funding needed to do further investigations or perhaps to get a QC opinion?
- what does the ATE insurance actually cover?
- does the 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 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 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.