An interesting recent decision from Mr Justice Mellor sheds light on the circumstances in which a court may accept a limited cross-undertaking in damages from insolvency officeholders.

In Re IAHP Group Holdings Ltd; Bucknall v Rizvi [2025] EWHC 2069 (Ch), the court granted both a worldwide freezing and a proprietary injunction, despite the liquidators’ cross-undertaking in damages being limited to an insurance policy with a £200,000 indemnity cap.

For insolvency practitioners, the decision is a welcome acknowledgement of the practical realities faced when seeking urgent injunctive relief to protect and recover assets for the benefits of creditors.

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.

Background of the case

The case involves IAHP Group Holdings Limited, a holding company (incorporated October 2020) for a group of companies (the “RDCP Group”). A winding-up petition was presented in February 2024, and the company was wound up in March 2024. The two respondents (a married couple) were the only acting directors and only shareholders of IAHP.

On the petition date, the respondents purported to resign as directors (retroactively) and appointed a third party (their children’s nanny) as a director with retroactive effect. The liquidators estimate a deficiency of around £11 million, and they allege that approximately £4.1 million of company funds were diverted to the respondents for personal use (via director’s loan accounts, luxury assets, etc.).

Following investigations, the liquidators applied for a worldwide freezing order, a proprietary injunction, and asset disclosure. They also sought approval for a limited cross-undertaking in damages, backed by an insurance policy capped at £200,000.

The Court’s decision

Mr Justice Mellor granted the relief, finding a good arguable case of misfeasance and a real risk of asset dissipation. He accepted the capped cross-undertaking, confirming that the usual default of an unlimited undertaking can be departed from in certain insolvency cases.

The court emphasised that:

• The liquidators were acting for creditors and had no personal interest;
• The respondents’ alleged conduct had caused the company’s insolvency;
• The insurance cover provided adequate protection in the circumstances; and
• The application was made promptly and supported by strong evidence

Key takeaways from the case

Flexibility for insolvency officeholders – Courts may accept a capped cross-undertaking where it offers real, proportionate protection, particularly when the respondents’ conduct created the risk and the liquidators act in a representative capacity.

Substance over form – Directors cannot rely on loose “loan account” labelling; the court will look at the reality of transactions.

Asset recovery strategy – Insolvency practitioners should consider freezing orders early, supported by appropriate insurance or litigation funding.

This decision is significant for insolvency professionals and funders. It shows that courts recognise the financial realities faced by liquidators seeking urgent injunctive relief and will adopt a proportionate approach where adequate insurance protection is in place.

Insolvency litigation funding options

Litigation funding, the assignment of a claim and/or ATE insurance can play a pivotal role in assisting restructuring professionals in meeting their obligations and managing resources effectively. The following methods are regularly used by insolvency practitioners when facing disputes:

After-the-event (ATE) legal insurance – ATE insurance is generally used to protect from adverse costs risks, Security for Costs, and Cross Undertakings in Damages. 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.

For insolvency disputes, insurers will often defer all premium payment until financial recovery is made in the claim. Premium will be capped at a maximum of recovered funds.

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. Such funding can also be used to drawdown cash immediately to be used for the purposes of restructuring the business, investigating claims, or pursuing litigation. Utilising contingent assets in this way can be an innovative and useful way to raise funds, when other options are unavailable.

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?

When handling insolvency matters, insolvency practitioners are obligated to explore all options available in such cases. 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 restructuring 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.