High Court holds that an Insolvency Exclusion applies in respect of a claim under the Third Parties (Rights Against Insurers) Act 1930 (“1930 Act”) and awards summary judgment accordingly but declines to provide much-needed guidance on insurers’ liability in the case of claims partially settled by the Financial Services Compensation Scheme (“FSCS”).

The Insolvency Service has recently published a rather extreme example of a director’s failed attempt to circumvent disqualification[1].

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?

There have been a number of smoke signals in the last few months around the increase of consumer debt in the UK and a focus on those firms providing consumer credit across the credit spectrum but particularly in the "sub-prime" or "near-prime" space.

Since the credit crunch, a number of consumer credit businesses have stepped in to fill a gap in the lending market. They give sub-prime or near-prime borrowers, who may find it difficult to obtain credit from traditional sources, with high-cost, short-term credit - instant access to funds.

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).

In a recent High Court decision, the court found that interim dividend payments made to a director were salary payments and not unlawful dividends/transactions at undervalue. This decision could make it more difficult for liquidators to recover sums from directors who do not have particular legal or accounting expertise.

Background

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