When an insolvency practitioner applies to the court for directions, the estate may be at risk of an adverse costs order.

Mike Pavitt and Nick Keitley's article on the Beam Tube Products case (Fanshawe & Adshead v Amav Industries Limited and others: All ER (D) 246 (Feb); (2006) EWHC 486 (Ch)), which followed Spectrum Plus, carries a footnote illustrating that risk.

The joint administrative receivers applied for directions about the proper characterisation of purported fixed charges. The court accepted the joint administrative receivers' views that:

• a floating charge over the proceeds of book debts was inconsistent with the charge over the book debts being fixed; and
• a purported fixed charge over plant, machinery and equipment was too wide and was properly characterised as floating.

The respondent debenture holder, whose arguments were unsuccessful, was awarded his costs as an expense of the receivership.

This is not a unique case. Insolvency officeholders should be aware of the risk of adverse costs on a directions application and should consider insuring that risk. (See an earlier post on insolvency litigation insurance here.)

• Email This
• Print
• Comments
• Share Link
• Mercer Hole Homepage
• Contact Us

Insolvency litigation funding is a maturing industry, certainly if you believe the press reports about Insolvency Management Ltd funding a $173m claim by the liquidator against the auditors of Stone & Rolls.

The details and merits of the claim need not concern us. What is important is that an "after-the-event" insurer will provide cover sufficient to enable a liquidator to issue such proceedings.

Litigation is not something a liquidator can pursue lightly. Even directions hearings can lead to adverse costs orders.

But the point has not been lost on the insolvency regulators that arguably liquidators have to explore - even in cases where there are very limited other assets to cover the costs - litigation funding and costs insurance whenever a reasonable antecedent transaction or other recovery claim arises.

Although such funding and cover has been available for some years (see "Funding insolvency litigation", Recovery, Summer 2002, p30), only now has it developed into a practical and actively used solution (see also "Using Litigation Funding - a practitioner's experience", Insolvency Practitioner, Summer 2005, p4).

The cases will not be a flood, but I see the development of such funding as good for creditors and good for the insolvency profession.

• Email This
• Print
• Comments (1)
• Share Link
• Mercer Hole Homepage
• Contact Us