Liquidators, Trustees in Bankruptcy and Administrators BEWARE: ATE Premiums & CFA Success Fees will Soon be Non-Recoverable in Insolvency Proceedings

This note is relevant to liquidators, trustees in bankruptcy and administrators ("office holders") who have, or may have, claims which, prior to April 2015, they ought – or wish – to bring against any third party on behalf of the company or bankrupt individual to recover money or property for the benefit of creditors. A change in the law, expected on 1 April 2015, will make it more difficult to bring such claims. Office holders should therefore review any potential claims well in advance of that date, so as to be able to take relevant action before the change takes effect.

At present, office holders who wish to bring such claims may do so by entering into:

i. a "No Win, No Fee" arrangement (by means of a Conditional Fee Agreement or "CFA") with their own solicitors; and

ii. an After the Event ("ATE") Insurance Policy with an insurer, which provides cover against the risk of losing and having to pay the defendant's costs (as well as cover against own expenses, such as barristers' fees).

If they lose the claim, they have no liability for their own solicitors' fees – and liability for the winning defendant's legal costs (and own expenses) is covered by the ATE policy. The policy is written so that the premium is only payable in the event of a win, so there is no liability for the premium if the claim is lost (that may seem counter intuitive, but that is how it works).

If they win the claim, they are liable for:

a. their own solicitors' basic fees + expenses + a success fee of up to 100% of the basic fees, but all of those are, in large measure, recoverable from the losing defendant; and

b. the ATE premium (which can be substantial), but that is also recoverable from the losing defendant.

In 2013, the government removed the right to recover success fees and ATE premiums from the losing defendant in the event of a win, leaving those amounts to be paid out of any damages recovered (or another source). However, in insolvency proceedings (see below for definition), a two year "period of grace" was allowed before the removal of recoverability took effect. The government has recently confirmed that it will take effect as of April next year.

We are willing to carry out an initial review of any potential claim by office holders, without charge, to consider whether we can offer to conduct it on a "No Win, No Fee" basis and whether ATE insurance is likely to be obtainable for it. There are now 6 months left before the change takes effect. It is vital...

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