As I’m sure you’ll be aware, the Government announced in December 2015 that the Insolvency exemption from the provisions of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) is due to end. With effect from April 2016 the following will no longer be recoverable from the losing defendant in insolvency cases:
- The success fee and/or uplift in conditional fee agreements (CFAs); and
- The adverse costs insurance premium
The attraction of issuing proceedings with a CFA and insurance in place is that the Insolvency Practitioner does not have to pay anything out of their own pocket in the event that the case is unsuccessful. This is especially attractive where there is no money in the case and the proceedings are designed to realise the only asset in the job.
What does this mean for Insolvency Practitioners?
Although you can still enter into a CFA and cases can still be insured from April 2016 the difference will be that the success fee and / or uplift and the insurance premium will be deducted from any monies recovered from the defendant rather than the losing defendant having to pay those in addition to any damages. This will of course reduce any sums available to creditors and may have a knock on effect on an Insolvency Practitioner’s fees. The losing defendant would be liable to pay the solicitor’s usual costs excluding any CFA uplift or success fee from April 2016.
In order to take advantage of the LASPO exemption before in expires, Insolvency Practitioners should take action now to ensure that insurance backed by a CFA is in place before the deadline expires in April 2016. If you are not yet ready to issue proceedings this can be done after 1 April 2016 providing that the insurance and CFA is in place before the deadline in order to preserve the benefit of the current exemption.
What do you need to do and when?
The first step in the process, once a suitable case has been identified, is to obtain insurance. In order to do this you will need to:
- have established the defendant’s asset position so that the insurer can be satisfied that in the event of a successful judgment that the defendant has the ability to pay; and
- obtain a Barrister’s opinion to satisfy the insurer of the prospects of success.
Turner Parkinson works closely with a number of insurance brokers, Barristers and enquiry agents and we can arrange all of this for you or make suitable recommendations.
Once insurance is obtained a CFA can be entered into with both Turner Parkinson and a Barrister to ensure that the Insolvency Practitioner does not have any exposure in the event of an unsuccessful outcome.
An application for insurance should be made as soon as possible as the insurers are likely to be inundated with suitable claims. Ideally applications for should be submitted as early as possible and certainly no later than the beginning of March to ensure that the insurer has time to assess the application. Insurers are likely to stop accepting applications some weeks before the deadline due to the sheer volume of applications that is expected. Don’t leave it too late to apply.
How can Turner Parkinson help?
We are happy to review any of your cases where you haven’t yet decided whether or not to pursue a claim to advise you whether or not this would be suitable for insurance.
Turner Parkinson will attend your office free of charge to undertake this review in appropriate circumstances and we will guide you through the process where suitable claims have been identified. Even if the claims aren’t suitable for insurance we will advise you in relation to your other options.
Insurers often issue more favourable terms to Insolvency Practitioners where there is more than once case being insured. For this reason, if you think you may have multiple cases which are suitable we would suggest preparing them ready to apply for insurance at the same time.
What does the future hold?
All is not lost post April 2016. The insolvency funding and insurance market is likely to continue to evolve with a broader range of options being made available to Insolvency Practitioners. The current providers will need to tailor their products to take into account the end of the LASPO exemption and there is likely to be more competition entering the market which is good news for Insolvency Practitioners.
Turner Parkinson is able to advise you on your full range of options post April 2016.
In any event, in those cases where the sums being claimed are substantial there will be less of an impact as the payment of an insurance premium and of success fee and / or uplift under a CFA will be less noticeable from realisations in those larger cases.
The Turner Parkinson insolvency team has vast experience in contentious matters and have handled a broad range of cases where insurance and CFAs have been put in place.
If you would like to discuss any of the issues raised in this Article please contact any member of the Insolvency team who will be happy to assist you.