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