Suing an insolvent company will become easier from 1 August 2016

After a delay of almost 6 years, it has now been confirmed that The Third Parties (Rights Against Insurers) Act 2010 will come into force on 1 August 2016.

What is so important about the Act?   It will allow claimants to bring claims directly against an insurer of an insolvent company, who effectively stands in the shoes of the insolvent company.  It is intended that the legislation will make it easier and less costly for a claimant to be able to recover compensation where the defendant company has become insolvent.

It has always been possible for a claimant to bring proceedings against an insolvent defendant, under the Third Parties (Rights Against Insurers) Act 1930 but the procedure is not straightforward and involved the claimant having to first bring proceedings against the insolvent defendant and establish liability before the insurers would indemnify.   This could lead to ineffective proceedings as a relevant insurer may not have existed.

However, insolvency law has changed considerably since the 1930 Act came into force, with proceedings becoming increasingly problematic.  The 2010 Act is intended to take away some of the difficulties of these proceedings.  Whilst the claimant will still need to establish liability against the insolvent company, they can issue a claim directly against the insurer before having to establish liability.   Further, not only does the new Act allow the claimant to pursue the insurer directly, it also gives the claimant rights to information relating to the insurance for the insolvent company before proceedings are issued. This information will enable the claimant to make a reasonably informed decision on whether it is viable to pursue a claim and avoid the problems in the past where proceeding have been issued at considerable cost to find that a valid insurance policy is not available and therefore no outcome to the proceedings.   Requested information must be supplied within 28 days, failing which an application can be made to the court to compel compliance with the request.

A key part of the new legislation is that the very fact proceedings can be brought directly against the insurer means it is not necessary to take the cumbersome and often difficult step of restoring the insolvent company to the companies’ register in order to bring proceedings against them.  It is important that claimant solicitors are aware of the new legislation and use it to the benefit of their clients wherever appropriate.