From 1 April 2016, conditional fee agreements (CFA), after the event premiums and success fees will no longer be recoverable in insolvency cases.
The legislative change is set to have the biggest impact on lower-value insolvency cases (damages less than £500,000 and legal costs lower than £200,000).
In addition, the ratio between the estimated value of a claim to legal costs of pursuing a claim (including the insurance premium covering personal exposure for the insolvency practitioner) will be of critical importance when deciding whether to commence litigation on a creditor’s behalf.
For higher-value cases where recovery runs into the millions there will be more flexibility in seeking alternative funding costs. Although these large cases provide greater flexibility, they will likely involve substantial legal and insurance premium costs.
Consequently, the difference between being able to recover the cost of the ATE premium as part of costs, as opposed to paying for the premium out of the damages or settlement, will have a significant impact on the net recovery for creditors.