Insolvency Advice – A Right of Action & the Right Course of Action

Liquidator’s right of assignment

The option to assign a claim is a widely used tool by insolvency practitioners (IPs) for raising funds. It is effective when there is a significant risk to the IPs or when fighting funds are limited. Since October 2015 the provisions for assigning a right of action have become wider. Claims that were once personal to the IPs are now capable of being assigned.

The most problematic issue to assignment used to be, that the right of assignment did not exist for claims arising purely from the IPs position as office holder. For example, an unlawful preference claim would not have been capable of assignment.

However, the new regulations that have now come forward to allow an assignment of a right of action arising from office holders, is proving to have a considerable impact on the realisation of funds for creditors. It is a welcome improvement on the former restrictions to IPs and is a clear carve out from the usual issues attached to champerty and maintenance (the right to bring a claim).

 

Previous issues

The new regulations recognise that IPs on appointment have a duty to realise assets of the company in liquidation, which is difficult if funds are unavailable to do this. It has often been the case that an office holder has had to close a liquidation prematurely due to limited funds and/ or unnecessary risk, despite having access to rights of action and all with reasonable prospects of success.

Of course this does not provide solutions to claims raised before October 2015. As stipulated above, the Courts have been wary in allowing third parties to take on the right of action when they would not normally have grounds to do so. This previously included office holders who would be entitled to raise claims under their position, but at the same time are limited to funding expensive and time consuming claims themselves.

IPs still have the option to circumvent such assignment restrictions, namely by assigning the equitable right of action whereby a share of the proceeds of any action are set out under a trust deed.

This still represents a viable option for funding claims pre dating the new regulatory changes. Here at Else we have a good background in drafting, forming and reviewing the construction of such deeds. Of course drafting such items can be a convoluted process and can leave the IPs at risk should the funder be unable to honour any liabilities incurred. In any event professional advice should be sought when venturing into such arrangements.

Why assign?

Either course of assignment can represent a commercial way of continuing a claim for the benefit of the creditors. Furthermore, aside from the funding benefits and limitation of risk for IPs in pursuing a claim, the prospect of bringing in a funder often carries a tactical advantage.

There is standardised notice which must be served on all respondents to the proceedings with the advent of a funder. This is served soon after the assignment is agreed and often provides a stark reminder to the respondent, that the claim has been carefully considered and carries sufficient weight to warrant third party involvement.

It is imperative the assignment agreement is well drafted and suitable to the IPs needs. Assignment in itself can create further obligations throughout the course of commencing proceedings and both parties should be clearly informed of these.

What to do next

If you are an Insolvency Practitioner and require advice on assignment or feel you may have a claim that is capable of assignment, get in touch with our Insolvency team. We have a strong track record of turning cases into well-argued and coherent rights of action, capable of being assigned. We have strong connections with funders and work with IPs to balance the ability to assign with the ultimate goal of realising funds and protecting the Liquidator.

 

If you need to find a way to fund a case or advice regarding insolvency, then we invite you to contact Daniel Woodall at Else Solicitors on 01283 526200 or daniel.woodall@elselaw.co.uk

 

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