Get your CFA and ATE in place before it’s too late

With the looming removal of the Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) insolvency exemption, insolvency practitioners need to act quickly to fund and insure cases in order to avoid ‘missing the recovery boat’ which sets sail on 1 April 2015.

The Jackson reforms have transformed the landscape for all forms of litigation in England and Wales. The aim of the reforms was to crackdown on the growing ‘compensation culture’ and address inefficiencies in the litigation process.

The abolition of the recoverability of success fees for Conditional Fee Agreements (CFA) and After the Event Insurance (ATE) premiums through sections 44 and 46 of LASPO is perhaps the most controversial outcome of the Jackson reforms given its limitation on access to justice. Sections 44 and 46 came into force on 1 April 2013 but insolvency claims were granted an exemption which comes to an end on 1 April 2015. This is despite lobbying from R3, ministerial support and an early day motion in the House of Commons.

CFAs coupled with ATE have been the tool used by insolvency practitioners in order to pursue rogue directors as well as recipients of antecedent transactions.

The loss of the exemption will mean that all CFA uplift (or success fees) and ATE premiums entered into after 1 April 2015 will need to be paid out of damages. From this date it will become more expensive for insolvency practitioners to pursue litigation which will likely lead to a significant decrease in claims brought for the benefit of creditors, especially for claims worth £50,000 or less. Fewer claims will result in less realisations for creditors and promote what can only be seen as a ‘rogue directors charter’.

In our experience of the 2013 implementation of LASPO there is likely to be a bottle neck for funding and insuring claims in the run up to 1 April 2015. There is usually a lead in time in order to risk assess, fund and insure cases, particularly where ATE is required. ATE proposals ought to be made by early March 2015 in order to receive quotes before the exemption is removed. It is critical, therefore, that insolvency practitioners undertake a review of their appointments and put in place funding before 1 April 2015. Insolvency practitioners are obliged to investigate such claims under SIP 2.

In the run up to the removal of the insolvency exemption we are working with office holders to put in place funding for claims or potential claims. If investigations are not yet concluded we can put in place CFAs that enable office holders time to continue their investigations before committing to a claim. ATE insurers are also likely to provide terms which allow office holders to cancel policies within a period of inception to allow investigations to be concluded.