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					  R3’s analysis of the Jackson proposals
  Select case studies from Insolvency Practitioners to illustrate the impact of the Jackson review on
                                         insolvency litigation

R3 conducted a survey of members via an online questionnaire between the 23rd and 27thof May
2011. Given the time frame we only had a small number of responses. The case studies include
cases that have already completed and those which are still being carried out and all figures are
based on approximate estimates from Insolvency Practitioners. Due to the size of the sample this
cannot be considered representative but gives an excellent indication of the impact the Jackson
proposals would have on returns to creditors.

R3 analysed a sample of 23 case studies where Insolvency Practitioners undertook litigation against a
director or third party, using a Conditional Fee Arrangement and After the Event Insurance. The
results highlight that the Jackson proposals would have a significant effect on returns to creditors;
both in terms of the viability of the cases and as a result of the costs being borne out of the insolvent
estate.

The impact on returns to creditors:

In just 23 cases the availability of CFA’s and ATE insurance meant an additional return to creditors of
£7.6 million.

Out of the 23 cases, 13 would not have gone ahead without the ability to recover the CFA success
fees and ATE insurance premium. This represents a loss of approximately £2.4 million for creditors.
In a further 6 cases the Insolvency Practitioner involved said that if they knew at the outset that the
success fee and insurance premium would not be recoverable it would have impacted on their
decision to go ahead with the litigation. In just 2 cases did the Insolvency Practitioner explicitly say
that they would still have gone ahead with the litigation.

In addition to the impact on the viability of litigation the Jackson review would also reduce returns to
creditors, as the CFA success fee and ATE insurance premium would be borne out of the insolvent
estate. Of the 10 cases which were still viable (a total return to creditors of £5.2 million), the
Jackson proposals would reduce the returns by approximately £1.2 million leaving a total return to
creditors of £4 million.

If the Jackson proposals were to go ahead, the total impact on creditors (both in terms of cases not
going ahead and a reduction in returns) in the 23 cases analysed would be an approximate loss of
£3.6 million; a 47% reduction in returns to creditors.

Case studies:

    1. An additional £400,000 was returned to creditors as a result of the litigation. The CFA
       success fee and ATE premium amounted to £170,000. In addition the Insolvency Practitioner
       was able to settle out of court days before the trial as the defendants knew they would have
       to pay if they lost. In this cases the Insolvency Practitioner said:
   “If I knew at the outset that the success fee and insurance premium would not be
   recoverable, I would have been unlikely to have entered litigation.”

   Impact: A loss to creditors of £400,000

2. An Insolvency Practitioner is currently undertaking a misfeasance claim against a director of
   a company for approximately £180,000. At this stage the preferential creditors are expected
   to receive a 100% return (£15,000) and unsecured creditors are expected to receive a 40%
   dividend (approximately £100,000). If the success fee and ATE could not be recovered then
   just £66,000 would be returned to creditors. In this case the Insolvency Practitioner said:

   “If we were prevented from recovering the success fee and ATE premium from any successful
   outcome, then the action wouldn’t even have been started.”

   Impact: A loss to creditors of £115,000

3. Approximately £100,000 of additional money was returned to creditors as a result of
   litigation and the ATE insurance premium and CFA success fee amounted to £15,000. In this
   case the Insolvency Practitioner said:

   “We would not have pursued the claim if the CFA and ATE fee were not recoverable. In
   addition the inability to recover the fees would have affected our negotiating position and
   the defendant would have dragged the proceedings out for longer rather than settling early,
   which would have increased costs for all involved.”

   Impact: A loss to creditors of £100,000

4. Approximately £50,000 was returned to creditors as a result of litigation against a director.
   As the CFA success fee and ATE insurance premium also amounted to £50,000, the case
   would not have gone ahead as the fees would have extinguished the likely recoveries.

   Impact: A loss to creditors of £50,000

5. Approximately £1 million was returned to creditors as a result of litigation. The CFA success
   fee and insurance premium amounted to £250,000. In this case the Insolvency Practitioner
   said:

   “The Jackson proposals would most definitely have impacted on my decision to pursue this
   claim. If the proposals go ahead it will become impossible to find solicitors and counsel to
   act in these cases.”

   Impact: A loss to creditors of £250,000, or in the worst case scenario £1 million

				
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