A diary note for all Insolvency Practitioners…..don’t miss out!

You may just about remember the Jackson reforms… and the extension to the recoverability of CFA success fees and ATE premiums which R3 did so well to secure. Sadly, as an industry we have to face the likelihood that in just over 5 months time, success fees and ATE premiums will no longer be recoverable from your opponent. Whilst R3 and the various professional bodies continue their vociferous and very well founded criticisms of the ending of the Jackson exemption, it seems increasingly less likely that we’ll be exempted again.

What we’re reminding you of, however, is that this will only apply to funding arrangements entered into after April 2015. Until then, CFAs and ATE premium arrangements entered into already or new agreements will still be recoverable so we’re inviting you to gather your files, write up your interview notes, pull together the searches and draw your conclusions about where the claims are!

We’re in regular contact with ATE providers and we’re being told that whilst there are still funders out there with an appetite to provide ATE before April 2015, there’s bound to be a backlog of applications so the message is – don’t wait until February or March as you may be unpleasantly surprised if funding cannot be put in place before April.

Let’s be clear, though – we can still enter into “no win, no fee” arrangements but they’ll take the more ‘Americanised’ form of the Damages Based Agreement, or DBA. These are effectively contingency fee arrangements but any award of damages will be reduced by ATE premiums (even if you can get deferred premium arrangements, which is currently unclear) and rather than success fees, the lawyers operate on a percentage of the recovery (the opponent still pays the costs but no uplifts, which under current arrangements are recoverable in addition to base costs.  If you’re looking to run a smaller claim, working out how the matter can be run effectively will be even more difficult that it has been to date.

Here’s a quick example of how a DBA would work. Let’s say you have a claim for £100,000 and your lawyers agree a 45% DBA with you. The claim proceeds very smoothly, and you win. You have costs incurred of £30,000 and your opponent is good for all the money (yes, we know…but there’s one of those out there somewhere!). Your lawyers are entitled to 45% of the claim, so the opponent pays the costs of £30,000 and you pick up the tab for the other £15,000, leaving a net return to the insolvent estate of £85,000. Not necessarily a bad result but creditors are going to have to know about this, and approve it as a recovery method. Also, as long as the claim is a lot greater than the likely costs, and the opponent is good for the money, everything is fine. It’s only when the ideal world scenario isn’t there that there may be some issues.

The big risk, of course, is that after April 2015 many good claims will not be pursued because of a lack of viable funding options. We’d recommend strongly that our Insolvency Practitioner clients prioritise preparing their cases now, so funding proposals can be made in good time and CFA agreements entered into where appropriate, together with a section 236 or 366 Insolvency Act 1986 application which also takes time. And, don’t forget potential need to apply for sanction… Court applications or organising creditor responses for sanction purposes can also take time and the closer to the deadline we get, the more difficult these things always seem to be!

Anyone needing to discuss funding arrangements after April 2015 can of course contact any of our specialist team via the main number 0207 353 1000.

Disclaimer: this article is not to be relied upon as legal advice. The circumstances of each case differ and legal advice specific to the individual case should always be sought.