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Insolvency Litigation

Insolvency Litigation

Authored by Phil Meekin

Phil Meekin

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Approximate read time: 2 minutes

The duties of an insolvency practitioner (IP) are many and varied. In addition to ensuring their client undergoes the procedure best suited to their circumstances, they also need to make sure the creditors get as high-a-return as possible. Before embarking on potentially costly and time-consuming litigation, insolvency practitioners should consider several important factors: –

  1. The merit of the action
    Who is likely to benefit from a successful outcome? Insolvency practitioners must act for the benefit of all creditors and consider whether a win would result in a distribution back to those creditors. As a result, consideration should be given to ensure that enough evidence is available to support the claim.
  2. Means to settle
    The action may be against the company or an individual. There is little point in bringing action against the company or person if they cannot pay.
  3. Funding
    Very often, the company in liquidation or administration will not have sufficient cash available to cover the costs of litigation. Wilson Field has developed relationships with solicitors to act on a no-win / no-fee arrangement. Doing so enables the insolvency practitioners to commence recovery proceedings.
  4. Insurance
    All litigation will have an element of uncertainty regarding its success, no matter how confident the insolvency practitioner is regarding the claim. So, if a claim proceeds to trial, there is always a risk that the case will be lost, with the losing side inevitably having to pay the costs of the winning party. One way to protect yourself against this is to take out an insurance policy.
  5. Sanction or approval
    Depending on the type of insolvency, the appointment of an insolvency practitioner may need sanction from its creditors before commencing proceedings. In administration, there is no requirement for sanction, but a trust in bankruptcy requires sanction before pursuing any claims. The liquidator of a Creditors Voluntary Liquidation (CVL) and the liquidator of a compulsory winding-up need sanction for officeholder claims, but not company claims.

In summary

Before an insolvency practitioner implements the appropriate procedure, they’ll need to consider several aspects. The likelihood that it will lead to a successful outcome, whether the client has the means to support the process, and whether they need sanction or approval to proceed. Once all these are considered, and the risks calculated, the IP will choose whether or not to continue.

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