Insolvency Claims – The End Of Recovering Premiums And Success Fees

Despite significant lobbying from R3, it looks very much like the government are not going to extend the exemption afforded to insolvency claims allowing the office holder in those claims to recover both After The Event ("ATE") premiums and success fees under conditional fee agreements ("CFAs"). When the exemption expires in April 2015, office holders will need to even more carefully consider, with their advisers, the most appropriate way to pursue insolvency litigation. Office holders can still enter CFAs with their advisers in order to pursue claims and indeed obtain ATE to protect themselves from the risk of adverse costs, but the success fee (which can be an uplift of up to 100% of time costs) and the ATE premium (which can be 40-70% of the adverse costs risk) cannot be recovered from the losing respondent but will be deducted from any damages recovered. This means that the ultimate recovery for the estate is affected and the cost / benefit analysis on each action will be even more important.

Next Steps

1. Consider and reconsider your caseload and progress any potential claims well before April 2015.  Whilst a careful analysis of the options must be carried out and a CFA with a success fee (with ATE protection) may not always be the appropriate option, that route will most likely be unavailable.  The review should therefore start now, particularly as the ATE providers will have a flurry of applications as the deadline approaches.
2. Consider with your advisers other possible routes to pursue insolvency claims such as Damages Based Agreements ("DBAs") or litigation funding.
3. Consider with your advisers on existing claims whether they will convert the basis upon which they act to a CFA.  This may not always be appropriate and it should be assessed on a  case by case basis.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.