The ability to recover premiums due on After the Event Insurance in insolvency claims, and the ability to recover the uplifted "success fee" under a Conditional Fee Agreement with a solicitor in insolvency claims, will no longer be available from the end of March 2016. Accordingly, Liquidators, Administrators and Trustees in Bankruptcy should ensure they review all cases, new or old, to ensure there are no potential claims sitting on their files which they will not be able to issue from April.
If a claim is issued now, or before the end of March at the latest, then the ability to recover these legal costs will be protected (and so creditors interests maximised). Accordingly it is vital that all Insolvency practitioners conduct a full review or audit of all of their insolvency files going back 6 years to ensure there are no potential claims that have sat on the side whilst the main asset recovery matters have been dealt with. A failure to do this could be criticised in the future, as legal funding in the future will provide a far smaller return to the insolvent estate.
At Francis Wilks & Jones we realise that such claims may not be immediately apparent to you or your colleagues, and often the prospects of a recovery of company monies (on an insolvency appointment) are overlooked or even ignored whilst the live matters are focused on. This can be a mistake and, to lift this burden from you we are prepared to offer, for a fixed fee of £500 plus VAT per case, a detailed review of your matter limited to 3 hours of a fee earner's time, which is a substantial reduction from our usual market rates.
For this fee we can provide advice on whether a claim exists, the legal aspects related to the proposed claim and our proposals to take the matter forward in order not to lose the ability to recover the additional legal funding (which may otherwise be payable out of the proceeds).
If you want to take up this offer please do not hesitate to contact me or any of the partners at FWJ.
Insolvency Practitioners have a very small period of time before this opportunity goes and it does take some time to draft the necessary documentation, apply for insurance and put together the claim, so it is vital you deal with this urgently. There are arrangements in place to deal with this anticipated demand quickly and if you would like to simply have a chat with me about this, or would liken to take up this offer, then please do not hesitate to call me at my office on 0207 841 0390.
Lord Jackson has announced that the insolvency exemption to the changes introduced by the Legal Aid, Sentencing and Punishment of Offenders Act 2012 ("LASPO"), which removed the recovery of "no win no fee" legal cost agreements with lawyers in legal proceedings, should end.
This will also mean that insurance premiums payable to cover opponents' legal costs will also not be recoverable in legal proceedings, meaning that the likely recoveries made by Liquidators, administrators and Trustees in Bankruptcy will be greatly diminished such that creditors may not get any return, or alternatively the risk of proceedings to the appointed Insolvency Practitioner is greatly increased.
If Lord Jackson's recommendation is implemented, this will likely lead to very little ability for Insolvency Practitioners to recover sums from Directors or their associates in insolvency proceedings, and thus effectively sanction pre-insolvency breaches of fiduciary duties and transfers of assets away from the reach of creditors.
Alternatively, if an Insolvency Practitioner is able to assign rights of action to third party funders (who will not have the same rights or access to information to support such claims) the return to the insolvency estate will be greatly reduced and in most cases will only cover professional fees incurred by the Insolvency Practitioners.
As from today Regulations have introduced the key provisions of the Small Business, Enterprise and Employment Act 2015 (“the Act”) as regards its affect on Directors and Insolvency Practitioners. This introduces very important changes which will have a considerable impact on Directors and the position of Insolvency Practitioners acting as Administrators or Liquidators. The key changes are addressed below.
1. Insolvency Practitioners – a Claim is now an insolvency asset!
Sections 117 – 119 of the Act commences as from today for any post 1st October 2015 appointments as Administrator/Liquidator. As from today, with regard to such appointments, Insolvency practitioners can now assign insolvency claims. This will undoubtedly lead to (eventually) a rush of funder interest in IP appointments where the funds or appettite to pursue litigated proceedings is not there.
Directors will also face increased difficulties in defending such claims against an insolvency application where the applicant funder now has very deep pockets.
No doubt this will also lead to Administration/Liquidation appointments in circumstances where there are no assets, as the IP will still have something to sell (subject to sufficient funding interest), and could lead to the interests of creditors being better served.
2. Compensation Orders
They have commenced. As from today anyone disqualified under the new provisions will then be subject to the risk of a strict liability offence by way of a Compensation Order. Undertakings can be given to pay such compensation but it is undoubtedly a large majority of Disqualification Claims – treating HMRC different to other creditors – which will be the basis for such an application.
Accordingly, as from today, the signing of a Disqualification Undertaking (which may in the past have been solely to avoid legal costs of litigation) will diminish as the cost threat is outweighed by the tax (or other) liability supporting the Compensation Order/Undertaking Directors would have to pay.
3. Director Disqualification Claims – extension of limitation period
As from today, Disqualification Claims under Section 6 of the Company Directors Disqualification Act 1986 (where the company has entered into insolvency proceedings) can be brought within a limitation period of 3 years post insolvency (it was 2 years previously). This increases greatly the ongoing and continuing risk to Directors, although please see my comments as regards commencement below.
4. Director Disqualification – new grounds for disqualification and for findings of unfitness
As from today, a Disqualification Claim can be brought against any Director of a Company for a criminal conviction overseas in relation to their involvement in an overseas company (or similar legal entity). This does not require that the UK company is placed in any form of insolvency proceedings or indeed does not require that the individual is currently a UK Director, although it appears to be intended to prevent a certain category of individual being appointed a Director in the UK with the associated risk to the public interest.
These changes include a change to Disqualification proceedings such that a Director who is acting as a Shadow Director (which the Act also addresses separately at Sections 89-91) of a company where unfitness is made out can now be disqualified. This reflects the corporate transparency requirements of this legislation. In addition, when engaged in disqualification proceedings, the Court can now additionally consider additional evidence of unfitness including conduct as a director of an overseas company.
5. Directors’ Appointments and Resignations
As from today, upon the appointment of a Director or Company Secretary (or any change to the Board) the filing requirements at Companies House now require confirmation that that individual has consented to the appointment.
This could have an affect on Non-Executive Directors or other Executive Directors where an unknown (and possibly not consenting) individual is appointed to the Board leading to the risk that they will be liable for such a breach of their statutory duties.
The Registrar of Companies is also required to write to that Director (upon his/her appoiontment) notifying them of their appointment.
The commencement provisions dictate that the above changes relates to conduct and proceedings occurring after today (1st October 2015) including, for Administrator/Liquidator claims, any appointments commencing from today.
For the filing requirements and notifications to Directors/Company Secretaries, the commencement date is 10th October 2015 (and accordingly applies to any notices/appointments from that date).Accordingly, the risk to Directors is not immediate and further to this the commencement provisions also require that the conduct referred to must also be post 1st October 2015.
Accordingly, we do not see this taking effect for a while, but obviously Directors should plan for such risks.As regards Insolvency Practitioners, this provides an almost immediate benefit in freeing them to dispose of good claims which they may not be capable of funding. However, for Directors, this poses an increased risk of a funder with deep pockets making claims against them. This will likely be subject to delay whilst funders put together arrangements to acquire such claims but we see this taking affect more quickly than the other changes.
If you would like to discuss any aspects of these changes (or any other changes introduced by the Act as mentioned in the previous blogs), please do not hesitate to visit our website at FWJ contact me or my colleagues atFrancis Wilks & Jones.
As from today the Insolvency Act 1986 (Amendment) Order 2015 (SI 2015/922 has amended Section 267(4) of the Insolvency Act 1986 such as to increase the bankruptcy level for a creditor's bankruptcy petition from £750 to £5,000.
Accordingly, for undisputed debts less than £5,000 a Statutory Demand will no longer be available to enforce an undisputed debt. Similarly, litigated County Court proceedings will need to be used to enforce a debt, but can only leading to either Charging Order proceedings (against fixed assets, mainly property) or Warrants issued by the Court Bailiff against moveable items of value.
This streamlines the Bankruptcy process and will undoubtedly lead to a sharp decrease in bankruptcies in England and Wales and coordinates with recent legislation, which is intended to remove or mitigate the consequences of small debts and also although for the inflation has occurred since the Insolvency Act 1986 was introduced.
Whilst useful to debtors this may have severe consequences for Asset Based Lenders and small businesses, all of which may have numerous debts below the Bankruptcy limits.
If you would like to discuss any aspects of these changes (or any other changes introduced by the Act as mentioned in the previous blogs), please contact my colleagues at Francis Wilks & Jones. Our website can be found at Francis Wilks & Jones
Any Applicant applying for a Freezing Injunction must undertake to the Court to pay any damages that a Respondent or any other party may suffer as a result of the Freezing Order if it later transpires that it should not have been granted. This undertaking can in certain circumstances be limited to a specific sum by the Applicant, subject to the Court agreeing.
Depending on the financial standing of the Applicant, the Court may direct that monies be paid into Court and held in an account until determination of the matter at trial. Alternatively, the Court may simply rely upon an undertaking from an Applicant to pay damages if, for example, the Applicant is of significant financial standing, such as a bank or other financial institution.
If an Applicant ultimately loses the underlying substantive claim or a Defendant successfully argues that the Freezing Injunction should be discharged, the Applicant could face a very significant claim in damages against it, either in terms of the legal costs of the main proceedings, the legal costs of the injunction application and the undertaking in damages arising from the injunction, both to the Respondent and third parties (subject to any limitation as described above). In any subsequent enquiry as to damages, the Defendant must prove that the losses he alleges would not have occurred but for the injunction, but not that the injunction was a sole cause of the loss.
It is open to a Respondent to ask the Court at the Return Date for the cross undertaking in damages to be increased and fortified (which refers to mechanisms to secure payment in the event the undertaking is called on). When considering the question, the Court will adopt the course which will involve the least risk of injustice. It is balancing act between having an undertaking which is of realistic value but ensuring that the fortification of it does not stifle the underlying litigation. A cross undertaking in damages is not required where the Applicant is the Crown or a law enforcement body.
What must an Applicant show to obtain a Freezing Injunction?
That it has met the requirement of Full and Frank disclosure
An Applicant has a duty of full and frank disclosure of all material facts. What this means is that an Applicant is required to provide full details of all information/documentation that is and/or may be relevant to the underlying claims, the timing of and/or the reasons for the application, including any such information/documentation which may be detrimental to the Applicant’s position. Should you require any further assistance at all in this area of the law, please contact one of our fraud specialists on 020 7841 0390 and we will be happy to have a consultation with you.
However, this is a relatively low threshold for the Applicant to get over. Recent judicial commentary states “the right course is to adopt the test of a good arguable case, in the sense of a case which is more than barely capable of serious argument, and yet not necessarily one which a Judge believes to have a better than 50% chance of success”.
It is not a requirement at the initial hearing that the Court has to form a provisional view that the Claimant will probably succeed at trial in its underlying substantive claim. However, the Court will take into account the apparent strengths and weaknesses of the case when deciding whether the Claimant’s case is sufficiently strong to reach the appropriate threshold. This will include assessing the apparent plausibility of statements in affidavits in support of the application. However, the test is not particularly an onerous one for the Claimant to pass.
That there must be a risk, or a real risk, of the Respondent dissipating or hiding his Assets
This is normally the most important factor the Court will look at when deciding whether to grant a Freezing Injunction. If the Applicant can satisfy the test, it is then for the Court to determine whether it is just and convenient to grant the injunction (as it is a discretionary remedy). There is a sufficient risk of dissipation if it can be shown that:-
- There is a real risk that a Judgement or award will go unsatisfied, in the sense of a real risk that, unless restrained by injunction, the Defendant will dissipate or dispose of his assets other than in the ordinary course of business.
- Unless the Respondent is restrained by injunction, assets are likely to be dealt with in such a way as to make enforcement of any award or judgement more difficult, unless those dealings can be justified for normal and proper business purposes.
The legal authorities suggest that the following factors are relevant when determining if an Applicant should be granted a Freezing Injunction:
(i) The nature of the Respondent’s assets. The more liquid and disposable the assets, the easier they are for the Respondent to dissipate and hence the greater the need for a Freezing Injunction to be granted.
(ii) The nature and financial standing of the Respondent’s business including its length of establishment. The less established and more precarious the business, the more likely the Court is to grant the Order.
(iii) What the Respondent has said about dealing with its/their assets in the past. This is often indicative of the Respondent’s likely intentions in respect of possible dissipation of assets.
(iv) Whether the Respondent is living or has a company incorporated in a jurisdiction known to be a tax haven with lax or difficult to follow company law.
(v) Whether English Judgements are actually enforceable in the place where the Respondent has substantial assets. The more enforceable the place of jurisdiction, the less likely the order will be granted – for example the EU compared to somewhere such as the Cayman Islands.
(vi) Whether the underlying claim involves dishonesty, even if fraud itself is not pleaded.
(vii) Whether the response to the Applicant has previously been evasive, or implausible reasons or explanations have been provided to information, or questions asked.
(viii) Whether there is any evidence of other dishonesty beyond the current claim.
(ix) Whether the Respondent has a past history of not paying debts or association with an insolvent company or other legal entities.
(x) Whether there is any evidence of actual or threatened removal of assets from the jurisdiction.
(xi) Whether there is a past history of failing to comply with court Orders.
(xii) Whether there is a past history of failing to disclose assets.
It is often thought that the mere fact of an allegation of fraud in the actual or intended claim is sufficient for the granting of a Freezing Injunction. This is not the formal position of the Courts, although in reality, it is often enough to obtain and maintain injunctions if the underlying claim discloses a good arguable case of fraud.
In this series of posts, we look at what the court requires to grant a Freezing Injunction in England & Wales and consider the legal and evidential considerations in that process. In these posts, the person or company seeking the Freezing Injunction is referred to as the Applicant and the person or company subject to the injunction is referred to as the Respondent.
Introduction – the Court’s Approach
It is a rule of thumb that Courts will not grant Freezing Injunctions lightly. This is because they go against a fundamental principle that an individual should be able to deal freely with his or her own assets. Therefore, there are strict and onerous obligations on a party seeking to obtain an Order of this nature from the Court, particularly on a without notice basis.
Commonly, most Freezing Injunctions are sought without any prior notice to a Respondent (“without notice applications”) on the basis that the Applicant does not wish to notify and/or give the Respondent any advance warning of the proposed action in case the Respondent then takes steps to put any assets beyond the reach of the Applicant. However, in the absence of the Respondent being given the opportunity to make representations at the initial hearing, the evidential burden on the Applicant is very high. The Court has to be very satisfied that the Freezing Injunction is appropriate to grant and will look at the application very carefully.
The granting of a Freezing Injunction is entirely at the Court’s discretion. The Court will always consider whether it is just and convenient to grant a Freezing Order. Applications will be refused if the injustice and/or detriment that would be caused to a Respondent outweighs the benefit that is gained by the Applicant. Equally, the Court will take into consideration the Applicant’s conduct and how quickly they have acted in seeking an Order. Any delay in making the application will severely damage the chances of a successful application.
This is probably the most unusual and dramatic remedy available to an Applicant. It is made pursuant to Section 135 of the Insolvency Act 1986 in respect of a company. It is an adjunct towinding up proceedings. An order appointing a provisional liquidator maybe made in circumstances in which pending the hearing of the winding up petition there is a significant risk that the Respondent’s assets will be dissipated and or that it will continue some fraudulent trading activity or that its books and records will be destroyed.
It is a very serious application indeed, as the appointment of a provisional liquidator over a company is very likely to have a terminal effect on the company’s trading life. A creditor in making an application must show that firstly he is likely to obtain a Winding-Up Order on the hearing of a Petition and secondly, in all circumstances it is right that a provisional liquidator be appointed.
A provisional liquidator must also be proposed to the Court, which is normally an accountant-qualified Insolvency Practitioner. This appointment serves only to protect the assets until the company is wound-up and does not always provide security for any assets in the short-term.
It is rare for creditors to seek such appointments, as the benefit of the appointment of a provisional liquidator lies with all creditors (and the Applicant’s claim will be treated equally against any assets recovered net of the fees of the subsequently appointed liquidator).
European Account Preservation Order
An Applicant may also consider the possibility of a European Account Preservation Order (“EAPO”). This is a new type of regime produced by the European Commission to enable a Court in one EU member state to make an Order freezing the bank account of a Defendant in a different EU member state.
Accordingly, this option only remains available between EU member states and may not apply to all European countries and is not available outside of Europe. There are also some limitations on the type of claim that may support an EAPO, it being only relevant to monetary claims.
The EAPO can only be used to freeze bank accounts and cannot be used against any other assets which the Applicant may be aware of. Equally, the rights of an overseas bank to set-off sums against account balances (for example where it operates more than one account in the Defendant’s name, it may set off an overdrawn account against the account subject to the EAPO).
Delivery up orders
These are Orders available under the Civil Procedure Rules 1998 (as amended) PD25A, which allows the Court to require that specified items are provided requiring delivery-up of such assets.
A Delivery-Up Order may be made where Orders are simultaneously being executed at the Defendant’s premises (for example Freezing Orders) and may be ancillary to the main order obtained. The Court must include all such ancillary orders as part of a Delivery-Up Order for the protection of third parties, including the Applicant. Such ancillary orders may relate to the manner of execution, the physical safeguard of assets and strict adherence to the terms of the order. Such an Order may also require a cross-undertaking by the Applicant.
These are Orders normally sought against property of the Defendant once judgement has been obtained. They are very useful for circumstances where lengthy proceedings have led to obtaining judgement but the Defendant refuses to pay the judgement liability (often by reason of an inability to pay the debt).
A Charging Order will normally be relatively straightforward to obtain if judgement has been granted in your favour and no steps have been taken to appeal or revoke the judgement (an appeal must be filed within 21 days).
In such the Applicant should consider a Charging Order against any known property assets as soon as possible. The expediency of dealing with this is vital, as one common tactic often employed is to register a charge against a property to eliminate any equity (and thus make the effectiveness of a Charging Order pointless).