• Posted

The Small Business, Enterprise and Employment Act 2015 (SBEEA) will open the doors to office holders to assign rights to certain claims which previously were not assignable.

The SBEEA provides that insolvency practitioners will be able to assign causes of action or the proceeds arising from them, in respect of

  • fraudulent and wrongful trading
  • transactions at an undervalue and preferences (England and Wales)
  • extortionate credit transactions.

A new statutory provision will confirm the common law position that the proceeds arising from the assignment and/or subsequent claims made will not be treated as part of the company’s net property for distribution to the holders of any floating charge created by a company. As yet, there is however no date for when this will come into force.

The Department for Business, Innovation & Skills (BIS) believe that the ability to assign such claims will ensure that fewer actions are hindered due to a lack of funding. This in turn may lead to more certainty and quicker returns to creditors. This will of course depend on the terms of the assignment and whether or not payment for the claim is contingent on recoveries being made by the assignee.

How these new rights will be used by office holders is uncertain. It is clear, however, that office holders assigning these rights of action and the assignees who purchase them will need to be carefully advised about

  • the extent to which an office holder will be obliged to continue to assist the assignee of claims with investigations bearing in mind the office holder’s powers to investigate under the Insolvency Act 1986 which are not assignable
  • the effect of assignment of claims on office holder duties to investigate under SIP 2
  • how payment for the assigned claim is to be calculated. The office holder will be under a duty to obtain fair value for the claim which is likely to be much more difficult to value than tangible assets
  • the risk of non party and wasted costs orders against office holders particularly in light of the Court of Appeal decision in Janan George Harb v Stephen Hunt (trustee in bankruptcy of Janan George Harb). The court held that like any other trustee pursuing litigation on behalf of a trust, a trustee in bankruptcy will, in principle, be liable for the costs of proceedings: both their own and, if the claim fails, any costs awarded to the successful party.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.