Before embarking on potentially costly and time-consuming litigation, insolvency practitioners should consider a number of important factors:-
1. The merit of the action – who is likely to benefit from successful outcome. Insolvency practitioners must act for the benefit of all creditors and consider whether a win would result in a distribution back to the creditors. As a result consideration should be given to ensure that sufficient 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 an action if the company or person whom you are bringing the action against does not have the ability to pay.
3. Funding. Very often the company in Liquidation/Administration will not have sufficient cash available to cover the costs of litigation. Wilson Field have developed relationships with solicitors to act on a no win / no fee arrangement. This 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 however, is to take out an insurance policy.
5. Sanction/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 and the Liquidator of a Compulsory Winding Up need sanction need sanction for office holder claims but not company claims.