From April 2015, success fees and After the Event insurance premiums will no longer be recoverable as part of the costs ordered on the successful outcome of insolvency litigation.
However, this will only apply to funding arrangements entered into after April 2015. There is still time for savvy IPs to ensure that current cases can benefit from the current arrangements but in order to do so they will need to take steps now to collect and collate the evidence on which their claims will rely.
Recent criticism in an open letter from the Institute of Credit Management, the British Property Federation, the Institute of Chartered Accountants in England & Wales, the Association of Chartered Certified Accountants, the Institute of Chartered Accountants Scotland and insolvency trade body R3, which warns that the proposed changes “are anti-business, will increase tax avoidance and evasion, and will benefit directors of insolvent companies who have committed fraud or behaved recklessly” appears so far to have fallen on deaf ears.
The changes will make “no win, no fee” arrangements much less attractive for IPs. Any award of damages will be reduced by success fees and ATE premiums, which under current arrangements are recoverable in addition to base costs. Particularly in smaller claims, this could leave a potential exposure on any shortfall, to which IP’s are unlikely to be willing to expose themselves.
It also seems unlikely that the government will implement any short to medium term fix to the Damages Based Agreements regime introduced in April 2013, which is widely regarded as unusable by the legal profession due to drafting deficiencies in the implementing legislation. Although the Ministry of Justice has asked the Civil Justice Council (CJC) to look at the position, it announced yesterday that the CJC’s remit would not include looking into the case for hybrid, or “no win, low fee” DBA’s, a decision which the Master of the Rolls and chairman of the CJC Lord Dyson has said he is “disappointed” by.
In light of the above, it is clear that after April 2015 many good claims will not be pursued because of a lack of viable funding options and so it is vital for IPs to ensure that all necessary preparatory steps in insolvency cases have been taken in good time, so that funding arrangements can be finalised and policy proposals put to insurers prior to the deadline.
Those with experience of running insolvency cases will be aware that sanction must be obtained for various types of application and very often it will be necessary to obtain information and documents from unwilling respondents before Advice can be obtained from Counsel as to the merits of a case, on the basis of which insurers will be willing to offer cover.
Office holders must be alert to the fact that their enquiries under Section 235 and 236 of the Insolvency Act 1986 in respect of corporate insolvency and Section 366 in respect of personal insolvency may lead to contested applications before the Court, which will inevitably take time to resolve. It is therefore important for investigations to be progressed swiftly, efficiently and urgently if they want to beat the April 2015 deadline and enable their cases for recovery of property to be brought under CFA’s backed by legal expenses insurance.