Tuesday, 10 March 2015

Funding Reform Reprieve for Insolvency Litigation

Following on from my blog entitled 'A Free Pass For Fraudsters? Funding Reforms to Affect Insolvency Litigation' the government has announced that the funding reforms planned for insolvency litigation to commence on April 2015 will now be delayed.

The extensive lobbying that was undertaken by R3 and other stakeholders in the insolvency industry seems to have had the desired effect. R3 pointed out that the delay would save £160 million of creditors' money per year - such money to have likely fallen into the hands of fraudulent directors or third parties. No doubt HMRC, with their creditors hat on, were also interested in not rushing through reforms that could see them recoup substantially less funds through the insolvency litigation route. This seems to be yet another hiccup in the breath of fresh air that the Jackson Reforms promised to deliver.

Monday, 9 February 2015

Court of Appeal rules that unpaid director was an employee

An interesting decision has emerged from the Court of Appeal this week which sounds a warning to companies that permit unpaid work to be undertaken by shareholders or directors.

In Stack v Ajar-Tec Ltd [2015] EWCA Civ 46 the Court of Appeal held that a director and shareholder who worked part-time for free did in fact have 'worker' and 'employee' status.

The case relates to an audio-visual business that had three directors who were also shareholders. One of the directors had a contract of employment and was remunerated accordingly. In contrast, although contracts of employment were considered and circulated in regard to the other two directors, such discussions and drafts were never formalised. The remaining two directors did input their time into the business but on a part-time, ad-hoc basis. This continued for three years but they were not paid.

When relations broke down, one of the directors who helped out part-time brought an unfair dismissal claim. Importantly, the Court of Appeal held that even though there was no formal agreement or remuneration in place, the director had undertaken a positive, enforceable obligation to work for the company. This was confirmed by his offer to bring his skill-set to the table at the beginning of the venture and then confirmed by his subsequent working input.

The appeal judges felt that such commitment and obligation implied that he should have received remuneration and it would not be just that one director received a salary and dividends whereas the others should only receive dividends, despite their evident input.

Small business should be aware that shareholders or directors who invest time and effort into the business but are not officially paid, may have employee status under the Employment Rights Act 1996. This would allow them to bring proceedings for unfair dismissal if they have provided such services for more than two years.

I know a number of SME businesses that have directors who operate in this manner and my advice would be to discuss such arrangements immediately with the concerned parties so as not to avoid confusion or problems further down the line. Directors who work for the business should ideally be placed on director's service contracts or employment contracts so as to provide protection for both the director and the company.

Friday, 30 January 2015

Law Society says civil court fee hikes spell disaster for access to justice

Following on from my last blog on the imminent increase to Court fees, see below the recent statement from the Law Society:

The Law Society has heavily criticised the government's decision to increase court fees for some civil cases. Law Society president Andrew Caplen said:''Court fee hikes introduced by the government from April spell disaster for access to justice.'

Read full statement

Thursday, 22 January 2015

Get in quick to avoid imminent increases in Court fees

Hot on the heels of my last blog which recommended filing any insolvency proceedings before the CFA and ATE insurance changes affecting that industry arrive in April, the Ministry of Justice have announced this week that, as of March 2015, Court fees will increase.

From March 2015, Court filing fees for all money claims with a value of £10,000 or more will increase to 5% of the value of that claim. However, the filing fees will be capped at £10,000. Thus, for a money claim of £10,000, the Court fee would be £500. For a claim to the value of £100,000 - £150,000 (a common money claim value in the SME market), the Court fees would be £5000 - £7500. This represents a substantial increase in Court filing fees. One silver lining is that claims lodged via the Money Claim Online system shall enjoy a 10% reduction in filing fees. This is unlikely to reduce the Court fee substantially in larger claims though.

These changes have caused some controversy, not least amongst the judiciary, who are concerned that this increase in fees will reduce access to justice. Interestingly, Employment Tribunal fees were introduced in the summer of 2013 and were also greeted with much controversy. Last year official figures revealed that Employment Tribunal claims have reduced by around 80% since fees were introduced. Some would argue that this heralds a general move by the Ministry of Justice to increase settlements. Interestingly, the official line is that these measures will unburden the Courts which are increasingly swamped with claims that would be more suitable for settlement or Alternative Dispute Resolution such as mediation.

Importantly, the increase in Court fees will not relate to Commercial Court or divorce proceedings. However, the Ministry of Justice has just announced a new consultation to consider raising Court fees in applications in civil proceedings and for the recovery of land.

It may be that this heralds a move to higher Court fees in all proceedings in England and Wales, but for those that are considering money claims, it would be advisable to file such claims before March and avoid the unwelcome fee hike.

Friday, 9 January 2015

A Free Pass for Fraudsters? Funding Reforms to Affect Insolvency Litigation

The last two years has witnessed major changes to the civil litigation regime known collectively as the ‘Jackson Reforms’. These reforms, sculpted by Lord Justice Jackson, have had a major impact on the litigation landscape, especially regarding costs and funding. Most of the reforms came into effect in April 2013. However, insolvency litigation has been exempt from the Jackson Reforms until April 2015. Now that the due date approaches, this piece explores the changes and their probable impact for insolvency proceedings.

The reforms relate to Conditional Fee Arrangements (CFAs) and After the Event Insurance (ATE). CFAs are an agreement between lawyers and those wishing to litigate where payment of a lawyer’s fees are only triggered if the litigation is successful. This is designed as an incentive for those who wish to litigate but do not have the requisite funds. The incentive for the lawyer is that, on top of their fees, they can also receive a ‘success fee’ payment if the litigation is successful.

ATE is a further incentive for those wishing to litigate who are concerned about having to pay the other side’s legal costs if they lose the litigation (a standard rule in civil litigation). ATE provides the prospective litigant with an option to secure insurance to protect against having to pay the other side’s costs if they lose.

A significant proportion of insolvency professionals use CFAs and ATE to fund insolvency litigation, including many of our own clients. Importantly, the Government believes that insolvency litigation is in the public interest as it acts as both a deterrent and a regime to punish fraudulent directors who deliberately wind-up their companies in order to avoid creditors. Such creditors are often HMRC so insolvency proceedings also provide a mechanism for the Government to recover tax. This public benefit is the main reason why insolvency proceedings have remained exempt from the Jackson Reforms, until now.

From April 2015, success fees deriving from CFAs and ATE premiums will no longer be recoverable (by lawyers and insurance companies respectively) for insolvency proceedings. This has caused controversy in the insolvency profession who unsuccessfully lobbied for insolvency proceedings to be exempt from these reforms. They argue that the abolition of the recoverability of success fees and ATE premiums will discourage insolvency litigation which will allow fraudulent directors to profit and the public purse, as well as private creditors, to suffer accordingly.

In April 2014, Professor Peter Walton published ‘The Likely Effect of the Jackson Reforms on Insolvency Litigation – an Empirical Investigation.’ This research was supported by many organisations with an interest in this issue, such as the Insolvency Practitioners Association.

In his report, Professor Walton argues that the Jackson Reforms are not applicable to insolvency litigation as their main aims were to address the disproportionality of legal costs to the value of the claim (such claims often being frivolous) and the ‘cherry picking’ of only the strongest claims by lawyers. In contrast, Walton argues that insolvency litigation, as it is in the public interest, is never frivolous nor the costs disproportionate as it allows the public purse to be reimbursed.

The statistics in the report also suggest that the Jackson Reforms may have a negative impact on the insolvency industry. For example, insolvency proceedings currently backed by CFAs enforce claims of approximately £300 million per annum. Of that figure, up to £70 million is money owed to HMRC.

Spring Law specialise in the SME market and, worryingly, it is the small to mid-market that may be most vulnerable to the actions of fraudulent company directors. The report points out that the majority of insolvency claims realise £50,000 or less. The concern is that due to the reforms, these smaller value cases are less likely to be pursued. This could have the unsavoury side-effect of giving fraudulent directors a carte-blanche to deliberately fold companies which owe creditors £50,000 or less and avoid any recourse through insolvency litigation.

It has yet to be seen how these reforms will impact insolvency litigation but if the problems outlined above do come to bear, then the Government may be forced to introduce amendments to these reforms. Spring Law work with providers of litigation and ATE funding and they have informed us that insolvency practitioners will need to move quickly to file claims before April 2015 in order to retain CFAs with success fees and ATE insurance. If you would like more information on how to bring such a claim or attain litigation insurance, please contact Andrew Day or Rory Lynch in the Dispute Resolution team.

Tuesday, 2 December 2014

'Small Change, Change Lives' - charity single for medical research

The season of goodwill is nearly upon us and, as such, I thought a little detour away from the world of law would be in order. I am on the Board of Trustees of a charity called The Friday Foundation - please see below for the story that helped inspire the charity's inception:

'Small change, change lives' 
A Christmas Single has been recorded to raise money for research into “Cures for the Big 4” killers that affect so many of us - cancer, diabetes, cardiovascular and neurodegenerative/psychiatric diseases.
The single, performed by  “super group” The Friday Foundation, is dedicated to the memory of the song’s lyricist and co-writer, Jonny Walker, a talented musician and fun loving 21-year-old, who was diagnosed with bowel cancer as a teenager and whose battle ended just a few weeks ago.  His premature death, which came before he was able to hear the completed recording, has been a powerful catalyst for all those involved in making the song a reality.
In a matter of weeks the single has been written, recorded, edited and mastered by people from a variety of backgrounds who have generously given of their time and talent. Amongst those performing are the Military Wives, Jonjo Kerr and Vicky Louise (vocals), James Gambold (drums), Alex Hutchings (guitar), Rich O’Brien (bass), Matthew Elston (violin), and a chorus including Jonny’s parents.
Jonny’s voice can be heard in the final section of the song accompanied by his Dad Mac on guitar, taken from an early demo of his ideas.  Although he never heard the final version, it is destined to become his legacy, raising money for causes in which he also passionately believed and which affect us all, not least his own wider family and friends.

If you would like to buy the single (all proceeds to relevant medical charities) then please visit the iTunes page

Alternatively, you can try the Just Giving page.

Many thanks in advance for any and all contributions made.

For more information please visit -

And for those I may not see beforehand - have a very Merry Christmas :)


Thursday, 18 September 2014

Paperless Revolution? Electronic filing introduced in the Chancery Division

In anticipation of electronic filing becoming compulsory in the Chancery Division in 2015, important interim measures and changes have been introduced which will take effect from 1 October 2014.

All court documents to be filed in the Chancery Division from 1 October 2014 shall be allocated a new case number for the purposes of electronic filing. This will include new claims and existing claims. All documents filed shall then be scanned into an electronic file for each claim. This measure will last for approximately 6 months until direct electronic filing shall become available to the public.

In relation to witness statement exhibits, for Part 7 claims a direction of the court will be needed for those that are more than 30 pages long. For Part 8 claims, witness statement exhibits that exceed 100 pages will also require a court direction.

There have also been changes regarding court bundles. It will become mandatory from 1 October 2014 for all hearings, no matter how short, to have bundles that have been filed at least 2 days before the hearing. If a bundle is not filed within the requisite time period then the hearing shall be adjourned.

These changes come hot-on-the-heels of the government announcement last week that from 1 October 2014, parties given permission to appeal to the Supreme Court or Privy Council will need to file court bundles electronically. This is a pilot scheme that will also run until 2015 when the system will be made permanent (depending on the outcome of the pilot). These changes certainly herald a concerted effort by the courts to move into a paperless reality. Whether this will work in practice, and trainees and paralegals will be free of painstaking bundling, is yet to be seen. It certainly would have been most welcomed during my legal training contract!

For more information on the changes please see: http://www.judiciary.gov.uk/publications/practice-note-chancery-chambers-changes-1st-october-2014/