The recent High Court decision in Fulstow & Or v Francis [2024] EWHC 2122 (Ch) marks a significant development in insolvency law. This case offers crucial insights and guidance for insolvency practitioners.

This case is important as it addresses several key aspects of insolvency practice, including the recovery and attribution of assets, the challenge of non-compliant witness statements, and the responsibilities of directors in an insolvency scenario.

Litigation finance, funding arrangements and insurance allow insolvency practitioners to pursue claims on behalf of their clients whilst reducing financial risks. At Annecto Legal, we can assist clients by helping them secure funding and insurance for insolvency cases.

Fulstow & Or v Francis [2024] EWHC 2122 (CH)

Fulstow & Or v Francis [2024] EWHC 2122 (Ch) is a case that highlighted significant issues with witness statements under the Practice Direction (PD) 57AC, which governs trial witness statements in the Business and Property Courts. Parties adhere to the procedural requirements set out in PD 57AC through a Confirmation of Compliance.

The dispute involved allegations that payments made by the claimants to the defendant were for a substantial shareholding in Capital Land (EDA) Swindon Limited, which owned significant development land near Swindon. However, the defendant argued that these payments were merely an initial commitment fee, pending a broader agreement that never materialised.

One of the central issues in this case was the preparation and compliance of the witness statements. The defendant sought to have the claimants’ statements struck out and stated that they did not comply with PD57AC. The court found that the witness statements did not meet the standards set out in the Practice Direction, which emphasises that witness statements should be based on personal knowledge and not influenced by legal teams, leading questions, or a list of documents.

David Stone, sitting as a deputy high court judge, found that the claimants’ witness statements were heavily influenced by their solicitors and included failures to comply such as:

• Lack of personal recollection, as the statements include events based on documents and legal advice rather than the claimants’ memory. Comments on other evidence were also included.
• Inadequate certificates of compliance, which are mandatory under PD 57AC.
• Evidence of the claimant’s solicitor providing an “aide-memoire”, which directed them on how to structure their answers, undermining the independent nature of their testimony.

The judge found that this was a clear breach and “demonstrates the very behaviour that PD 57AC is aimed at preventing”. Ultimately, the court declined to strike out the statements but placed no weight on them due to these breaches, severely impacting the claimants’ case. The court also denied the claimants’ attempt to introduce further witness statements on the first day of trial, as those were found blatantly non-compliant.

This case emphasises the importance of strict adherence to PD 57AC in ensuring that witness statements are the product of independent recollection and not influenced by external factors like legal advice or leading questions.

Why is this case important for insolvency practitioners?

Fulstow & Or v Francis [2024] EWHC 2122 (Ch) is important for insolvency practitioners because it addresses key issues related to insolvency and the treatment of assets. The case provides clarity on how assets are recovered in insolvency situations and how they are attributed between different parties. This is crucial for practitioners in determining the correct approach to asset management and distribution.

It deals with issues of fraudulent conveyance and the conditions under which transfers of assets can be challenged. This is significant for ensuring that transfers made by insolvent entities are scrutinised appropriately to protect the interests of creditors.

Transferring assets by way of the assignment of insolvency claims is also increasingly scrutinised. It’s therefore important for professionals to approach multiple markets for assignments, and ensure best value is achieved.

Insolvency litigation funding options

Litigation funding, the assignment of claims and/or ATE insurance can play a pivotal role in assisting insolvency practitioners (IPs) in meeting their obligations. Insolvency practitioners involved in insolvency litigation can make use of the following funding methods:

• After-the-event (ATE) legal insurance– ATE insurance is generally used to protect from adverse costs risks & Security for Costs requirements. After-the-event (ATE) legal expenses insurance is perhaps best thought as a similar to a ‘swap’. For either no upfront fee or a small upfront fee, the insurer takes on all of the risk of the potential adverse costs award. The claimant has swapped their obligation to pay the defendants in the event of a loss, with the obligation to pay the insurer in the event of a win. This ‘swap’ is generally an attractive swap as the client is likely to be in a better financial position following a win than following a loss. Also, the payment to the insurer will only be a percentage of the adverse costs rather than the whole amount.
• Third party litigation funding– In some cases, third party litigation funders may be willing to provide funding for a claim in exchange for a share of any financial settlement or damages awarded. This option can be attractive when there are no funds to pursue a strong case. ATE insurance is often used in conjunction with this type of funding.
• Assignment of litigation – Some types of disputes can be assigned to a third party, usually for an upfront payment and a share of recoveries (after costs). This model can be useful on smaller cases when the ATE and CFA model would not deliver value. But giving up control can sometimes be costly, especially on larger claim disputes.

How can Annecto Legal assist?

At Annecto Legal, we assist a wide range of clients in finding the appropriate insolvency litigation funding, assignment options and after-the-event (ATE) insurance.

Annecto Legal regularly assists licensed insolvency practitioners who are involved in dealing with insolvency and asset distribution matters. If you are in the process of bringing or defending an insolvency dispute and want to find out whether we can assist in helping you fulfil your obligations and secure the right deal, then contact Annecto Legal now.