Vol 14 (2017) - Issue 2

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A Broker’s View on Funding Insolvency Claims

This article seeks to explain what litigation insurance and funding products are available for English insolvency cases, whether large and small. Specifically, we will look at:
– How the market has been adapting to the removal of ATE premium recoverability following the implementation of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO), which although delayed for insolvency related litigation, finally took hold in April 2016;
– The rise of monetisation products
– the selling of insolvency claims to third parties rather than simply seeking third party funding for the legal costs to pursue the claim;
– The ATE insurance premium adaptions for high value insolvency litigation – A major revelation about arbitrations that could have implications for insolvent parties around the world whose impecuniosity is being exploited by their opponent.

Funding modest value insolvency proceedings in the UK
Since the Ministry of Justice brought an end to ATE premium recoverability in insolvency cases in April 2016,1 the number of lower value cases (under 250k legal costs cover) seeking insurance has dropped dramatically.
In relation to the smaller English litigation cases, it is difficult to tell just six months after the lifting of the exemption to LASPO, whether it is this change itself which has led to the reduction or simply the fact that insolvency lawyers insured everything they could pre-April, in a rush to secure recoverability before the deadline. There was a major surge of applications in March so it would have been inevitable that the period between April to now would be comparatively quiet. We insured hundreds of cases in March and some insurers were binding policies on cases that were still in their very early stages encompassing what might have been the pipeline for future applications.
We are not of course expecting a major rejuvenation in applications for ATE in relation to low value insolvency claims. The economics are too difficult on many modest value claims without the ability to recover the premium and CFA uplift. Insolvency lawyers and practitioners were not wrong when they repeatedly warned the Government that access to justice for creditors (including the Government itself) would suffer. There is no magic solution to funding uneconomic claims, however there has been a sharp growth in the number of firms interested in monetising insolvency claims, including claims which might not be viable for other forms of funding.

The increase in insolvency claim buyers
In lower value cases, we are tracking the rise of liquidators selling causes of action for valuable consideration to third parties (often described as 'funders' although what they offer is different to litigation funding).
Almost immediately after March, a niche market of claim purchasers started to make a lot more noise. It is not a new concept and it is not a complicated one. The third party will effectively buy and take an assignment of the right to pursue an insolvency claim from the liquidator, either by paying a lump sum upfront to be distributed to creditors or, as is more often the case, paying something upfront with a promise to pay a share of any recovery achieved.
We broker the sale of claims on behalf of IPs to an ever increasing circle of buyers, to the extent the process becomes effectively a claims auction.
These buyers will fund the necessary own side’s legal costs, perhaps taking some of these in-house to reduce the costs required and assume the responsibility for any adverse costs and security for costs (perhaps using ATE themselves).