Success Fees and ATE Insurance

THE LAW GIVETH AND THE LAW TAKETH AWAY…

There has been increasing concern over the last year or so in the insolvency industry over the prospect of the removal of the insolvency exemption from part 2 of the Legal Aid, Sentencing & Punishing of Offenders Act (LASPO) 2012, which had been planned take effect from April 2015.

Briefly, this provision was introduced with a view to reducing the high cost of litigation, by removing the possibility of recovering success fees and After the Event Insurance (ATE) premiums from respondents in successful litigation proceedings. The provision came into effect in in April 2013, but was deferred in the case of insolvency proceedings until April 2015, to provide the insolvency profession and other interested parties time to adapt to the new provisions.

The problem faced by insolvency practitioners in litigation is that they are often left with insufficient funds with which to fund an action. In such cases, the use of solicitors’ Conditional Fee Agreements, which incorporate a percentage uplift in the event of success, combined with ATE Insurance which provides insurance cover to meet the respondents legal fees in the event that the action fails, have proved to be extremely useful tools, often providing a result for creditors that could not otherwise have been achieved.

There has been much lobbying of government since April 2013, much of which seemed to have fallen on deaf ears until finally on 26 February 2015, the Ministry of Justice (MOJ) issued a statement confirming that the exemption would continue beyond April 2015, while the MOJ considered the appropriate way forward for insolvency proceedings.

This news was greeted by the insolvency profession with great jubilation and relief, leaving the way open to make recoveries, which lack of funds would otherwise prohibit. (Please click here for an update).

This plethora of metaphorical back-slapping was quickly replaced by dropping jaws and the sound of palms slapping on foreheads when, less than a week later, on 4 March 2015, the Court Service announced a massive hike in court application fees where a claim exceeds £10,000, effective from 9 March 2015 as follows:

Claim Value Previous Fee New Fee Increase£  Increase
£ £ £ £ %
20,000 610 1,000 390 64%
40,000 610 2,000 1,390 228%
90,000 910 4,500 3,590 395%
150,000 1,315 7,500 6,185 470%
190,000 1,315 9,500 8,185 622%
200,000 1,515 10,000 8,725 576%
250,000 1,720 10,000 8,280 481%

Effectively, the issue fee is now equal to 5% of the value of claims up to £200,000.

Since these fees are payable “up front”, most insolvency practitioners would need to consider carefully the merits of using creditor funds to issue proceedings, especially in the case of larger claims. There was a great feeling in the profession therefore that the further deferment of the LASPO provisions was of no great benefit.

There is however, from a creditor’s viewpoint, a silver lining in that these new fees do not apply to actions taken in insolvency proceedings in connection with misfeasance, preference and breach of duty by directors. The issue fees in such cases remain at realistically modest levels.

© J D Travers 2006-2017