Much like the English Scheme of Arrangement which has become a popular debt restructuring solution for international debtors, the English High Court is an attractive forum for insolvency litigation thanks to the potent combination of wide-ranging powers available to Insolvency Practitioners (IPs) under the Insolvency Act 1986, and the increasing availability of litigation funding arrangements in the London market.
Transactions which prefer related party creditors or which are at an undervalue or otherwise result in serious prejudice to creditors may be clawed back in the right circumstances. Many of these remedies are capable of having extra-territorial effect. In other words they can be used to support the efforts of an overseas IP who is recognised by the English courts, and may be sought against a defendant who is outside the jurisdiction.
In the last few years, the growth of litigation funding has made insolvency litigation even more accessible. The prevalence of litigation funders demonstrates the confidence they have in the English systems, its courts, judges and infrastructure, along with lawyers and experts to get these claims up and running, and if necessary pursue them to trial.
Litigation funders are becoming even more sophisticated in the way they fund cases and limiting the risk that an IP or litigant might be exposed to. Having previously focused on single disputes with considerable upfront work put into assessing the chances of a successful outcome, many litigation funders are now looking to fund a portfolio of cases, thereby spreading their overall risk as well as the upfront costs across a number of matters.
The one spanner in the works is that as of April of this year, the so-called ‘LASPO Insolvency Exemption’ has come to an end, meaning IPs can no longer recover the success fee component of a conditional fee arrangement nor after the event insurance premiums (unless the arrangement/policy was entered into prior to April 2016). This means that the solicitors’ success fee (if any) is a drain on creditors’ overall returns, and therefore a disincentive to litigate.
Despite this unwelcome development, there is a widespread expectation that litigation funding will continue to grow in size and appeal. Investors are already starting to appreciate that money invested in litigation claims is a viable alternative investment, and litigation funders are flush with cash and looking for suitable claims to fund.
This will help to secure England’s positon as a primary centre for insolvency litigation.