In an increasingly digital economy that extends across borders and where globalisation continues to accelerate in both pace and intensity, there has been a significant growth in cross-border insolvency matters in recent years. What this means is that, upon being appointed, an insolvency practitioner will often need to consider collecting and distributing assets across multiple jurisdictions, whether as part of formal recognition proceedings or otherwise.
This will often involve the resolution of complex creditor claims, and an insolvency practitioner must assess whether it is economically viable to commence debt recovery proceedings in light of the costs involved and the expected return to creditors.
Often, insolvency office holders have to deal with the complex issue of determining the expected costs of debt collection measures as well as the possibilities of how costs may be reduced where possible. The chapters also cover the issue of costs incurred by foreign insolvency practitioners when they have to enforce foreign judgments.
It appears that there are very different views about what it may or should cost to gain access to the courts to enforce a claim, and what flexibility plaintiffs and litigators should have with regard to financing the costs of litigation, in particular lawyers’ fees. An interesting finding was that a few countries like Mexico and South Africa in principle offer free access to justice by not charging court fees. Most of the other jurisdictions covered in this report charge court fees and in many cases a prepayment is required in order to start proceedings. Surprisingly, whether court fees are charged and the quantum of fees charged does not seem to have an influence on the average duration of court proceedings.
With respect to professional litigation financing, in countries like in the USA, India and Germany parties that do not have sufficient funds are able to gain access to the court system and this has been a long-established practice. In some countries however like Croatia, Mexico and the Caymans litigation financing is not available.
There seems to be a tendency, though, that this possibility becomes increasingly widespread, and it is now starting to get established in countries like Brazil, France and Spain. An interesting issue is the admissibility of contingency fee agreements: While some countries consider restrictions on lawyers’ freedom of contract to be problematic, the majority of countries provide for prohibitions or restrictions on contingency fee arrangements, probably because of concerns that those arrangements would impair objectivity.
Another financial obstacle for litigation can be the fact that in some countries the principle of the losing party bears all costs does not apply. Particularly in the USA and the UK, where the basic principle applies that each party bears its own costs, the question of whether it is worth taking legal action in view of the probable costs – insofar as these can be estimated in the first place – becomes a game of calculation or chance. Even with the prospect of at least partial reimbursement for the winner, the lawyer’s fees usually represent the most problematic factor in forecasting costs, because very few countries have regulations for statutory fees like in Germany, which allow a fairly accurate calculation based on the value in dispute.
The United Kingdom
This country report is written based on a situation where an insolvency estate includes a (potential) claim against a (third party) debtor who is domiciled abroad. The court-appointed insolvency practitioner (IP) has to assess the costs for pursuing the claim in order to decide whether it is affordable and economically reasonable to try recovery abroad. Two scenarios are considered. In scenario 1 the claim has not yet been subject to a court proceeding; in scenario 2 an executory title already exists and would have to be enforced abroad.
Scenario 1: Claim has not yet been subject to court proceedings
The law as stated in this response is that in force as of 28 January 2021. The position regarding reciprocation and enforcement as between the United Kingdom (UK) and the European Union (EU), however, is currently in a state of flux. This response is intended to be a general guide only and does not constitute legal advice. Insolvency practitioners (IPs) seeking recognition of foreign insolvency proceedings or judgments in the UK will need to obtain specific, up-to-date legal advice at the relevant time, as the position may have changed.
Recognition proceeding and costs
What is the proceeding and what are the estimated costs for the recognition of the foreign insolvency proceeding and the IP’s power to pursue a claim?
For foreign insolvencies where the main proceedings were opened on or after 1 January 2021, the procedure for recognition in the UK is the same regardless of whether the proceedings were opened in an EU member state or not. This is because on 1 January 2021 the EU regime relating to private international law, including the Insolvency Regulation (EC 1346/2000), the Recast Brussels Regulation (EU) 1215/2012 and the Recast Insolvency Regulation (EU) 2015/848 ceased to apply in the UK.
The current position is therefore that recognition of all foreign insolvencies opened on or after 1 January 2021 will be dealt with under the Cross-Border Insolvency Regulation UKSI 2006/1030 (CBIR).
The CBIR implements the United Nations Commission on International Trade Law (UNCITRAL) Model Law and enables the English courts, on application, to grant relief in support of foreign insolvency proceedings. Where those proceedings are recognised as “main” proceedings (i.e., where the foreign proceedings have been commenced in the country where the debtor has its centre of main interests), this will result in an automatic stay on the commencement or continuation of any action or proceeding concerning the debtor’s assets, rights, obligations or liabilities. The court also has a discretion to grant further forms of relief in support of the foreign insolvency.
The costs of an application to court to recognise foreign insolvency proceedings under the CBIR is likely to start at around GBP5 000. The costs and procedure may change in respect of EU insolvencies, however, if the UK’s application to join the Lugano Convention is approved by the EU and / or the EU implements the UNCITRAL Model Law.
For insolvencies where the main proceedings commenced in an EU member state on or before 31 December 2020, the Recast Insolvency Regulation will continue to apply, providing for automatic recognition of the proceedings in all of the other member states, including the UK. The costs of obtaining this recognition are likely to start at around £1 500.
Does your jurisdiction allow or provide for the following?
- Contingency fee agreements
- Conditional fee agreements (CFAs) and damages-based agreements (DBAs) are permitted for most litigation matters except for criminal and family cases. Both are kinds of “no-win-no-fee” agreements:
- in a CFA, if the client wins, it is liable to pay all legal fees and expenses, often including an additional “success fee”;
- in a DBA, if the client wins, it is liable to pay an agreed percentage of any damages received to its legal representatives.
- In either case, if the client loses, it pays nothing to its own representatives (although it may still be liable for the costs of the other side). The client will have to fund its own disbursements, such as court fees and barrister’s fees.
- Is legal aid for litigation available for a foreign IP?
- No legal aid is available.
- Is litigation financing and / or insurance for litigation costs provided and, if so, starting at which amount?
Yes. Both third-party litigation financing and “after the event” legal expenses insurance are available. The cost and the terms offered are individually negotiated based upon the amount of the claim, the merits and the prospects of recovery against the debtor of any judgment. Generally, in order to consider an application, an insurer or funder will require full details of the proposed claim including draft particulars, together with counsel’s advice on the merits.
It is usually only cost-effective to obtain legal expenses insurance where the expected recovery is more than £50 000. It is no longer possible for legal expenses insurance premiums to be recovered from the losing side, so the premium would need to be paid from the damages received by the claimant.
Third-party litigation finance is a bespoke arrangement and is generally the most expensive form of litigation funding. If the claim is successful, then the funder will take a share of the damages, usually 30%–50% of the amount awarded. For this reason, litigation financing is only likely to be an option for higher value claims starting at £400 000.
Obtaining an enforcement order
Besides commencing regular civil proceedings, are there easier and cheaper ways to obtain an enforcement order?
If the debt is undisputed, then it may be more appropriate to seek to commence insolvency proceedings against the debtor by serving a statutory demand or winding-up / bankruptcy petition. Under the Corporate Insolvency and Governance Act 2020, however, statutory demands against limited companies are currently void and winding-up petitions are only allowed to proceed if the court is satisfied that the debtor company’s difficulties are not caused by the Covid-19 pandemic. These provisions are in force until the end of March 2021 and may yet be extended further.
What are the legal provisions for lawyers’ fees and are there compulsory statutory fees for some or all activities?
Lawyers’ fees are a matter of contract. Most fees are charged on the basis of an hourly rate, although fixed or capped fees may be available for more routine work. There are no compulsory statutory fees.
In order to take legal action, does a foreign plaintiff have to provide security and / or make a prepayment for court costs and, if so, how is the amount calculated?
A court fee is payable by the claimant in order to issue proceedings. Court fees in civil proceedings are calculated by reference to the amount of the claim. For claims in excess of £10 000 the court fee is 5% of the amount claimed up to a maximum fee of £10 000. There is also a hearing fee payable if the matter proceeds to trial, which ranges from £25 to £1 090 depending on the amount of the claim.
In limited circumstances, a claimant can be ordered by the court, on application by the defendant, to provide security for the defendant’s costs of the proceedings. This includes where the claimant is resident outside of the jurisdiction and not within a state bound by the 2005 Hague Convention on Choice of Court Agreements, and where the claimant is a company and there is reason to believe that it will be unable to pay the defendant’s costs if ordered to do so. Where the application for security for costs is made out, the claimant can be ordered to provide security in an amount that the court thinks fit in all the circumstances and should be proportionate to the amount involved in the case.
What are the legal provisions for court fees in civil proceedings?
Court fees in civil proceedings are set out in the Civil Proceedings Fees Order UKSI 1053/2008 as amended.
Refund of legal costs and expenses
Is the winner of a court proceeding entitled to reimbursement for the legal costs and expenses?
Costs recovery is very limited in money claims where the amount outstanding is less than £10,000. These matters fall into the “small claims track”, where the successful party can usually only recover a nominal sum.
Higher-value cases are allocated to either the “fast track” (where the value of the claim is between £10,000 and £25,000) or the “multi track” (for claims over £50,000). The usual position in the fast and multi tracks is that the unsuccessful party is ordered to pay the successful party’s legal costs and expenses, to be assessed by the court if not agreed.
Scenario 2: Enforcement order (judgment) exists and needs to be enforced abroad
Recognition proceeding and costs
What is the proceeding and what are the roughly estimated costs – including lawyer and court – for the recognition of the foreign enforcement order for a claim in the amount equivalent to €5 000, €50 000 and €500 000?
The Recast Brussels Regulation and the European regime of reciprocal enforcement apply to the judgments of EU / European Free Trade Association (EFTA) member state courts where the proceedings were commenced on or before 31 December 2020.
EU / EFTA judgments in relation to proceedings commenced from 1 January 2021, and the judgments of other jurisdictions, may be subject to procedures provided by treaty, statute or rule which will be used where available. Otherwise, the common law rules will apply. A foreign judgment is not directly enforceable in the English courts but can be cited as proof of the debt in a fresh action in the High Court pursuant to Part 74 of the Civil Procedure Rules. Once issued, the claimant can seek summary judgment which will usually be dealt with without a hearing.
The legal fees for an application where the European regime applies would likely start at £1 500. Where that regime does not apply, the costs will likely start at around £2 500. A certified translation of the judgment must be submitted to the court along with the application.
Obtaining information about the debtor
Are there any sources of information about whether a debtor of a claim is without means or subject to an insolvency proceeding?
Where the debtor is an individual, a bankruptcy search can be undertaken, as well as a search of the Registry of Judgments, Orders and Fines.3 These would reveal whether the debtor is currently bankrupt or subject to an individual voluntary arrangement, and whether they have any unpaid court judgments registered against them.
Where the debtor is a limited company, searches can be undertaken via the courts to ascertain whether the company is subject to any current or pending insolvency procedures, and accounting information is publicly available from Companies House.
If a judgment is obtained, then a creditor can apply to court for an order requiring the debtor to attend court for questioning as to their means.
What main enforcement measures are available and what are the costs – including lawyer and enforcement authority – for enforcing a claim in the amount equivalent to EUR5,000, EUR50,000 and €500 000?
The main enforcement measures are as follows:
▪ taking control of goods using writs and warrants of control;
▪ third-party debt orders;
▪ attachment of earnings orders; and
▪ charging orders over property.
In the second part of this series, we will take a look at this from the US perspective.