The CFA is an extremely useful tool insolvency practitioners can call upon to settle proposed litigation early. It is also hoped an alternative will be available should the reforms go ahead.
Insolvency practitioners will often consider entering into a conditional fee agreement in order to commence proceedings for recovery of certain claims.
A successful outcome to a claim will result in a success fee being paid to the solicitor in addition to their usual base costs. The protection to the insolvency practitioner is that there will be no requirement to pay any upfront fees, or any interim fees. Very often the other side will view this as a position of strength. They may seek to settle a claim sooner than they would otherwise have done so.
The success fee will be calculated on the litigation risk and the postponement risk (likely delay in conclusion of the case). The litigation risk is recoverable, however the postponement element is not. Counsel may also enter into a CFA but this will be with the instructed solicitor not with the insolvency practitioner. Disbursements such as court fees and experts will not be covered by a CFA.
In April 2003, the Government had to carry out reforms to the civil procedures. This may result in the abolishing of the ability to recover a success fee from the other side.