A fundamental consideration when embarking on any litigation is whether the defendant will be able to pay. In most cases, this is really a question of whether the defendant is insured (although in some cases a defendant may be uninsured and yet still have the means to pay).

What happens if the defendant is insolvent?

Case Alert ‐ [2017] EWHC 2597 (Comm)

Court confirms insurance policy exclusions are not construed narrowly/scope of an insolvency clause

The claimants brought a claim under the Third Parties (Rights against Insurers) Act 1930 against the professional indemnity insurers of their financial adviser. The adviser gave allegedly negligent investment advice in respect of bonds issued by a company which then went into liquidation (and so defaulted on payments due to the claimants).

Summary

I previously considered this subject in a blog in November 2014, which can be found here. I had been faced with the problem of an insolvent company in the context of an injury claim arising out of an occupier’s liability accident in Cornwall. Whilst staying in a hotel my client had suffered a nasty injury to her ankle, The hotel was run by a limited company which went into liquidation during the case.

The Court of Appeal in London today gave judgment on Parts A and B of the Lehman Waterfall II Appeal, as part of the ongoing dispute as to the distribution of the estimated £8 billion surplus of assets in the main Lehman operating company in Europe, Lehman Brothers International (Europe) (LBIE).

Court of Appeal judgment: Burlington Loan Management and others v Lomas and others (as the joint administrators of Lehman Brothers International (Europe) (in administration)) [2017] EWCA Civ 1462

Summary and background

On 24 October 2017 the Court of Appeal handed down its decision in what has become known as the Waterfall IIA and B litigation (Burlington Loan Management Limited and others v Lomas and others [2017] EWCA Civ 1462). The decision also covered an appeal of one point from the High Court Waterfall IIC decision.

Key Points

Key Points

• Statutory powers are to be exercised in accordance with a company’s articles of association
• The Duomatic principle cannot simply be used as a bandage to cure a company’s procedural errors

The Facts

This appeal considered whether the sole director of a company, whose articles required two directors for its board meeting to be quorate, could validly appoint administrators under paragraph 22 Schedule B1 of the Insolvency Act 1986.

A New Regime

From 1 October 2017 a new pre-action protocol has come in to force which applies to claims brought by a business claiming a debt from an individual. The protocol sets out the conduct expected by the Court prior to legal proceedings being commenced against the debtor. It does not apply to business-to-business debts unless the debtor is a sole trader.