In 2013 as part of the so called “Jackson reforms” to civil litigation, the ability to recover Conditional Fee Arrangement (“CFA”) success fees and After The Event (“ATE”) insurance premiums from other parties in litigation was removed. Insolvency practitioners bringing claims on behalf of insolvent companies were exempt from the application of these new provisions; however the Ministry of Justice announced in December 2015 that the exemption would be lifted in April 2016.
Recoverability of the insurance premiums and success fees was abolished by the Legal Aid, Sentencing and Punishment of Offenders Act (“LASPO”) 2012, under sections 44 and 46.
Article 4 of the LASPO (Commencement No. 5 and Saving Provisions) Order 2013 provided for a carve-out for claims filed by companies in liquidation or administration, administrators, liquidators or trustees in bankruptcy. The exemption was originally due to expire in April 2015; but the government announced in February 2015 that it was postponing the deadline. In December 2015 it then announced that the exemption would be lifted in April 2016.
The changes are expected to have a significant impact on insolvent companies and insolvency practitioners as well as third party funders and litigation insurers.
What can you do before the April deadline?
After the April 2016 deadline, insolvent companies will no longer be able to recover their lawyers’ success fees and insurance premiums from the other side, in the event of success. Instead, these will have to be paid out of the damages (if any) awarded to the company.
Ahead of the deadline, it is important that insolvency practitioners contemplating litigation enter into CFAs and take out ATE insurance as soon as practicably possible. The claims do not have to be directly “insolvency related” or even finance related. It appears that any litigation which could swell the assets available for distribution to creditors qualifies for the exemption.
Hausfeld offers its clients a flexible funding model. Currently the possible arrangements include a full CFA or partial CFA with an ATE and possible third party funding, and hybrid solutions. It may also be possible to negotiate terminable CFAs and ATE plans while we investigate your potential claims.
What can you do after the April deadline?
Hausfeld will continue to provide and negotiate on behalf of its clients flexible and innovative arrangements, aimed at enabling its clients to manage the fees and funding expenses tailored to your specific circumstances.
Looking ahead, it will become increasingly important for companies to secure suitable Before the Event (“BTE”) insurance to cover any fees and disbursements in the event of litigation.
The government is planning to review the impact of lifting the exemption in the period between April 2016 and April 2018. It is therefore still possible that it will reinstate the exemption in the future.
To read the government's Written Statement announcing the lifting of the exemption, please click here.