Effects of Insolvency on Legal Assistance Granted prior to Insolvency Order

May 2006

60.31 Notification of insolvency - company

Where a winding up order has been made or a provisional liquidator appointed, no action or proceeding shall be proceeded with or commenced against the company or its property, except by the leave of the court and subject to such terms as the court may impose [note 1]. Notice of the winding up order or appointment of the provisional liquidator should be given to the court hearing any action.

60.32 Notification of insolvency - bankruptcy

When the official receiver as interim receiver or trustee becomes aware of any proceedings to which the bankrupt is a party the official receiver should notify the court and the other party of his/her appointment. The court may stay proceedings or may allow them to continue on such terms as it thinks fit [note 2].

If a bankrupt has recently obtained funding from the Commission, the official receiver should obtain the bankrupt's written consent to any information provided in respect of the funding to be disclosed by his/her solicitor to the official receiver. The Official Receiver may wish to obtain a copy of any application forms from the solicitor, and written consent from the bankrupt will avoid any data protection disclosure difficulties.

60.33 Withdrawal of funding following a bankruptcy order

Under section 15.5(ii) of the Funding Code Criteria [note 3], funding for services under the CLS may be withdrawn from an individual against whom a bankruptcy order has been made. Bankruptcy will usually lead to the discharge of the certificate as on the making of a bankruptcy order most causes of action will automatically vest in the trustee and will cease to vest in the funded individual.See also paragraph 60.16.

Where the official receiver is aware that a bankrupt may be an individual for whom services funded by the Commission are being provided, he/she should send notice of the bankruptcy order to the appropriate Regional Office of the Commission and to the solicitor acting for the bankrupt.

60.34 Rights of action that do not vest in the trustee

Certain rights of action do not vest in the trustee, e.g. those arising from an injury to the bankrupt's person rather than his/her property. In these cases, a decision may be made by the Commission not to discharge the certificate, notwithstanding the bankruptcy order and section 15.5(ii) of the Funding Code Criteria.

For more information on rights of action generally and those that do not vest in a trustee, see Chapter 31.9 Part 3 - Rights of Action.

60.35 Pursuit of assets- rights of action

Where the official receiver is liquidator or trustee and he/she encounters a right of action as a potential asset to the estate and there are insufficient funds in the estate to pursue the action, the official receiver must consider the following;

  • to circularise the creditors to obtain funding from them to pursue the right of action,

  • to appoint a liquidator or trustee from the civil recovery rota, having first offered the appointment to the next insolvency practitioner on the official receiver's office rota,

  • to seek a settlement with the other side out of court,

  • to assign the right of action to another party, or

  • to disclaim the right of action.

60.36 Assignment of a right of action

If the official receiver is unable to obtain funding to pursue a right of action, he/she may be approached by another party who wishes to take over that action. The official receiver should always take independent legal advice before considering such an action. Where an individual who may be eligible for funded services from the Commission makes such an approach, if the assignment includes an agreement for the potential benefits from the proceeding to be shared with the creditors, the Commission is likely to require the creditors to accept responsibility for a share of the costs proportionate to their share of the potential benefits before the Commission will agree to continue or commence funding.

For more information on the assignment of a right of action see Chapter 31.9 Part 4 - Rights of Action.

60.37 Assets in bankruptcy resulting from funded proceedings

In some circumstances a bankrupt may be funded by the Commission in proceedings (such as divorce proceedings) concerning assets which, as after acquired property, might be claimed by the trustee. It is possible that the proceedings and funding will continue notwithstanding the bankruptcy order. The official receiver will need to liaise closely with the solicitor concerned and the Commission to ensure his interest in the proceedings is known and to be informed of any subsequent award to the bankrupt that may be claimed as an asset for the estate, subject to the statutory charge first applying (see Part 4).

60.38 CLS assistance not available to official receiver as trustee

As a trustee in bankruptcy, in theory the official receiver could apply for funding assistance from the Commission to pursue a right of action if there are no funds in the estate and creditors will not fund the action. However, such an application is unlikely to be successful, as under section 5.4.2 of the Funding Code Criteria an application will be refused if there are alternative methods of funding available to the individual or there are other persons or bodies, including those who might benefit from the proceedings, who might reasonably be expected to bring or fund the case. It seems very likely that the Commission would consider that the creditors should be expected to fund the case as they are most likely to benefit from any recoveries made. Further, it is a matter of public policy that the official receiver does not have access to public funds to pursue legal action to recover an asset in a bankruptcy estate. In conclusion, it is considered extremely unlikely that an application for CLS funding would be successful.

60.39 Costs awarded to the official receiver

Costs may be awarded against a funded individual [note 4] in favour of the official receiver where action has been taken by or against him/her. Where the court is considering whether or not to make a cost order, it will consider whether, but for cost protection, it would have made a costs order against the funded individual, and, if so, whether it would, on making the costs order, have specified the amount to be paid under that order [note 5].

A costs order may specify the amount to be paid under it only if the court has sufficient information to decide what is a fair amount to require the funded individual to pay [note 6], otherwise the order will not specify the amount to be paid under it [note 7].

60.40 Determination of amount of costs awarded to the official receiver

Where a costs order does not specify the amount to be paid under it the official receiver may, within three months of the making of the costs order, request a hearing to determine the costs [note 8]. If the official receiver makes such a request he/she must file the following documents at court and serve on the funded individual and on the Regional Director of the Commission;

  • if the costs order does not state the full costs, the receiving party's bill of costs [note 9],

  • a statement of resources [note 10], and

  • if the receiving party is seeking or may seek a costs order against the Commission, written notice to that effect [note 11].

The official receiver should not seek a costs order against the Commission.

If the official receiver becomes aware of a favorable change in the financial status of a funded individual against whom a costs order in the official receiver's favour has been made, he/she should consider applying to the court for a variation [note 12] or late determination [note 13] of the order.


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