Recovery of Success Fees and After-the-Event (ATE) Insurance For Insolvency Litigation

What was the law around the recoverability of success fees under CFAs and ATE premiums?

On 1 April 2013, the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) removed the ability to recover success fees under conditional fee agreements (CFAs) and after-the-event (ATE) insurance premiums in all ‘non-exempt’ proceedings.

What does that mean?

That meant that anyone who entered into a CFA arrangement, or took out ATE insurance would not be able to claim the success fee and the ATE premium from their opponent if they were successful.

What were ‘exempt’ proceedings?

However, one of the ‘exempt’ proceedings from this general provision was for any litigation relating to insolvency proceedings brought by a liquidator, administrator or trustee in bankruptcy. So any of these entities who engaged in litigation to recover assets of an insolvent estate or company would be able to recover the success fee under any CFA and could also recover any ATE insurance premium.

When did the law change for insolvency proceedings?

This exemption was due to expire in April 2015, but in February 2015, the government decided to extend this deadline indefinitely. It was then announced in a ministerial statement published on 17 December 2015 that the exemption for insolvency proceedings would expire in April 2016, although no fixed date was provided at that time.

On 15 March 2016, the government confirmed that this exemption would finally expire on 6 April 2016. That means that any liquidator, administrator or trustee in bankruptcy who was considering their funding options for litigation, would have to have had a CFA and/or ATE insurance in place before 6 April 2016 in order to be able to recover any success fee and ATE premium.

What does this now mean for anyone trying to recover assets from an insolvent estate?

If a CFA and/or ATE insurance was not in place by 6 April 2016, it is not now possible to recover the success fee or the ATE premium from the other side. This would need to be paid by the client, most likely out of any recovery made in the ensuing litigation.

Any liquidator, administrator or trustee in bankruptcy needs to bear in mind the additional costs that they – and ultimately the creditors – will be liable for when considering proceedings to recover assets from an insolvent estate.

If your business is facing the challenge of a commercial dispute or litigation, IBB’s commercial dispute resolution lawyers can help. Call us today on 01895 207954 or email commercialdisputes@ibblaw.co.uk.