April not only brings out the joys of spring for many of us, but, for lawyers, it often means another raft of civil procedure amendments and changes to get used to. April 2016 was no different for the commercial litigator, and my earlier post covered the significant enforcement procedural changes that are now in force. However, it was also quite a significant month for the insolvency professional.
The new PD 51P that was introduced as part of the 83rd CPR update provides for a pilot scheme for “Insolvency Express Trials” (IET). This pilot scheme is available for simple applications before the Bankruptcy Registrars in the Bankruptcy and Companies Courts of the Chancery Division of the High Court as from 1 April 2016 (any connection with April Fools’ Day is purely coincidental).
The opening statement under paragraph 1.1 is worth setting out, as it summarises the scheme:
(1) This Practice Direction is made under rule 51.2. It provides for a pilot scheme (“IET”) to operate—
(a) from 1 April 2016 for two years;
(b) in the Bankruptcy and Companies Courts of the Chancery Division of the High Court;
(c) in relation to proceedings before the Bankruptcy Registrars.
(2) IET is designed to deal with simple applications made to a Bankruptcy Registrar:
(a) which can be disposed of in no more than two days;
(b) which require limited directions (as opposed to case management) and disclosure of documents; and
(c) where the costs of each party will not exceed £75,000 (excluding VAT and court fees but including any conditional fee agreement uplift).
Reasons for the pilot
So what is the thinking behind this new trial? It is very much the brainchild of the Bankruptcy Registrars themselves and, as Chief Registrar Baister said in March 2016, two main ideas really lay behind the decision to experiment with an express trial procedure. The first was the generally perceived need for faster and cheaper trials and the second was to relieve the parties and the court of the burden of costs management, which it seemed to the Registrars could be avoided if costs could be kept to a reasonable sum. The Registrars also took into account the limited disclosure that is needed for many insolvency cases.
Thus, the aim of the IET is to provide litigants in the Bankruptcy and Companies Court with a speedy, streamlined procedure, and an early date for the trial or disposal of simple applications by the Bankruptcy Registrars, with consequential costs savings for the parties.
Applying to utilise the pilot
Use of the IET pilot scheme will be voluntary: applicants will be able to decide which of their cases (if any) should proceed under the scheme. If the criteria set out above are satisfied, and the applicant wishes to utilise the scheme, then they must clearly mark the application with the letters “IET” and include a confirmation statement that it is suitable for the scheme. The respondent is also told that they are entitled to object to its use (see below).
Once the proceedings are issued, the court will list a directions hearing which the scheme provides is to take place no more than 45 days from the issue date with a time estimate of 30 minutes.
Objecting to use of the pilot
If the respondent objects to the use of the scheme, then they must file and serve the reasons for objection no later than 14 days before the directions hearing, and the applicant is entitled to file and serve a reply no later than 7 days beforehand. As befits the ambit of the scheme, the content of the objection and reply is to be limited, in both cases to two sides of A4 paper. The court will then consider any objections and can decide on its own motion whether or not the application should continue under the scheme.
It will be for the Registrar to give directions at that first hearing and fix the trial date, with the intention that it should take place between three and six months from then with an agreed time estimate.
Given that the IET will only apply to simple applications which require limited directions and disclosure (because only one directions hearing is envisaged), a maximum two day trial is decreed.
As to disclosure, given that in run of the mill insolvency litigation the relevant documents are often just the company’s books and records, the issue of inspection should not be an onerous one.
PD 51P specifically states that the trial date may not be vacated by consent, and an adjournment will only be granted in exceptional circumstances. The intention is for judgment to be given at trial or, if it must be reserved, within four weeks.
Importantly, the IET imposes a costs cap of £75,000 for each party (excluding VAT and court fees but including the CFA uplift ), and states that this is “not intended to act as a costs target”. Additionally, and no doubt to the great relief of many litigators, the costs management rules will not apply.
The costs cap of £75,000 will provide the parties with a degree of certainty regarding their costs exposure. Chief Registrar Baister has confirmed that he originally proposed a cap of £50,000, but was persuaded that was too low, perhaps due to litigation taking place on a CFA basis.
It is perhaps significant that this pilot scheme starts in the same month that insolvency practitioners have lost the insolvency exemption to the CFA regime under LASPO. From 6 April 2016, proceedings brought by liquidators, administrators and trustees in bankruptcy to recover the assets of the insolvent estate are now subject to the same costs system as other forms of civil litigation. As a result, insolvency practitioners are no longer exempt from the following sections:
- Section 44 of LASPO, which removed the recoverability of a success fee in CFAs.
- Section 46, which abolished the recoverability of ATE insurance premiums
This should be borne in mind when considering this scheme and its operation. On the basis that the level was fixed before the abolition of the insolvency exemption, one wonders if the present figure will be reduced in the future?
Thoughts on the scheme
Although the proof of success will be in the delivery and operation, this scheme is in my opinion a very welcome development in times of ever increasing criticism of the cost of court proceedings and legal fees outweighing sums in dispute. It would seem to fit well with the current thrust of civil justice reform and review (Lord Justice Briggs’ final report on this area will be with us later this year). Insolvency practitioners are often litigating without assets in the estate and depending on success to be paid, so anything to simplify the often protracted and costly civil procedure process is very welcome.
Finally, and very helpfully, both Chief Registrar Baister and Mr Registrar Briggs have said that they will welcome comments and suggestions from users of the IET scheme. Clearly such feedback will enable the scheme to be refined and will be very relevant on the question of its extension after the two year period has expired.
Without doubt, the insolvency profession is operating in interesting times (new rules anyone?)!