The 2012 Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act served to abolish Conditional Fee Agreements (“CFA”), or ‘No Win, No Fee’ agreements as they are more commonly known. These agreements allowed parties to pursue a claim in the Courts, without having to fund some or all of the ongoing legal fees. In return, the lawyers would be entitled to an enhanced fee, by up to 100%, which the other side would have to pay if their client won the case. CFAs were criticised, as it was said that they placed the respondent to the claim in a situation ‘between a rock and a hard place’, in that the claimant’s argument maybe be fundamentally flawed, but the fee of the claimant’s lawyers acting under the CFA may outweigh the value of the claim to such an extent, that the risk of defending the claim and losing became too great.
Insolvency though was a special case. Rogue directors often leave the insolvent companies with no assets with which to fund a liquidator’s claim. This meant that in order to meet his lawyer’s costs, the liquidator would need to reach into his own pocket, or ask the creditors to reach into theirs. As you can imagine, this request was usually refused, with creditors feeling that they did not wish to put ‘good money after bad’. As such CFAs in insolvency proceedings were therefore granted a reprieve. However, an announcement by Dominic Raab MP on 17 December 2015 has put an end to this exemption from April 2016.
At EWS LLP, we have traditionally used the CFA to good effect in recovering funds for creditors and we have always been flexible with respect to recovery of the CFA uplift. Strong relationships with solicitors and counsel, developed in the battlefield of the Court, mean that despite the risk associated with the CFA, the team would pursue good claims for the benefit of creditors. With the withdrawal of the CFA, whilst the strong relationships survive, the ability to recover the risk uplift from the other side is over, meaning that the value of any uplift will need to be recovered from the asset, being the claim itself.
The decision is due for further review in April 2018, but nevertheless, it is disappointing. However, it is not fatal. Despite losing our right to some or all of our uplift in a CFA, and whilst the decision is bad for the ‘policing’ of the economy, we still believe that with alternative funding options we can continue to assist creditors in potential recoveries without them having to resort to further contribution to legal fees.
If you have been affected by the matters raised in this article, please contact us to discuss your options.