Insolvency and Third-Party Recovery Action: Why Both Matter

When an investment business fails, investors naturally look to the appointed insolvency practitioner (IP) for answers. That is entirely understandable.

An administrator or liquidator has important statutory responsibilities, including investigating the company’s affairs, realising assets, and distributing available funds to creditors. However, formal insolvency is not necessarily the only possible route to recovery.

A third-party asset recovery action (TPARA) performs a different function. It looks beyond the insolvent company itself and considers whether there may be separate claims against third parties whose involvement contributed to investor losses.

What does an insolvency practitioner do?

An IP is appointed to deal with the failed company and its estate. Their role can include identifying and selling company assets, examining transactions, and investigating potential claims belonging to the company. Any money recovered is then dealt with under the statutory insolvency regime.

That work is carried out for the benefit of the relevant insolvency estate and its creditors. The IP must remain independent and comply with their statutory duties. Importantly, they are not appointed to pursue every possible claim that an individual investor may personally have against an outside party.

What is a TPARA?

A TPARA starts from a different question. Rather than only asking what assets or claims belong to the insolvent company, it asks whether evidence supports a separate claim against one or more third parties. Those third parties will depend entirely on the facts of the particular case.

Insolvency & Law takes assignments of investor loan notes, debts and associated claims. This allows individual claims to be organised, investigated and, where justified, pursued collectively. The intention is not to replace the IP or interfere with the administration of the failed company. The focus is potential recovery from third parties.

The two recovery routes are different

This distinction is important:

• An insolvency recovery comes from assets or claims belonging to the insolvent estate
• A TPARA seeks a separate recovery where evidence and law support a claim against another party

One route does not necessarily exclude the other. Under I&L’s assignment terms, any insolvency distribution attributable to an investor’s assigned claim is paid to that investor without deduction or set-off by I&L. The same principle applies to qualifying compensation received from a statutory compensation body.

I&L’s assignment fee and any entitlement arising from a TPARA recovery are dealt with separately under the assignment agreement. This is intended to keep the statutory insolvency recovery and the third-party recovery route distinct.

Why cooperation can matter

Although the two processes are separate, there may be circumstances where cooperation is useful. Evidence relevant to a third-party claim may exist within records previously held by the failed company or its professional advisers. An IP may obtain some of those records through their statutory powers.

I&L does not seek unrestricted access to insolvency records. Where information is relevant to an assigned claim, any request should remain proportionate and subject to appropriate restrictions. These may include confidentiality, legal professional privilege, data protection, and investigative sensitivity.

There can also be practical advantages to cooperation. I&L can consolidate investor enquiries, organise evidence and help investors understand what an insolvency practitioner can realistically achieve. The office-holder remains independent. I&L remains independent. Neither needs to endorse the other for either process to operate effectively.

An established operating model

I&L has obtained an opinion from a King’s Counsel concerning its assignment and operational model. The opinion concluded that the model did not contravene the Financial Services and Markets Act 2000 or the Legal Services Act 2007.

The Financial Conduct Authority subsequently examined I&L’s model. After receiving information about the operation and the legal opinion, that investigation concluded without regulatory action. Nevertheless, I&L continues to keep its model under review as the law, regulation, and individual recovery actions develop.

Different roles, but a common objective

Formal insolvency and third-party recovery should not automatically be viewed as competing processes. The IP seeks to recover assets and claims belonging to the failed company. A TPARA looks elsewhere for an additional recovery where the evidence justifies doing so. Both recovery routes can therefore operate independently while still exchanging relevant information where appropriate.

For investors, the important point is that one route does not necessarily have to come at the expense of another. There should be no need for unnecessary conflict between I&L and statutory office-holders. Each can preserve its independence while allowing legitimate recovery routes to proceed on their merits.

Could a TPARA apply to your investment?

If you have suffered losses following the failure of an investment business, the insolvency process may not be the only potential recovery route. Insolvency & Law investigates whether evidence may support separate claims against third parties whose involvement contributed to investor losses. Where appropriate, investor claims can be assigned and investigated collectively.

Email info@insolvencyandlaw.com to discuss whether a third party asset recovery action may be appropriate for your circumstances.

Disclaimer
Insolvency & Law Ltd is a private commercial organisation. We are not a firm of solicitors or licensed insolvency practitioners and are not authorised or regulated by the Financial Conduct Authority. We do not provide investment advice, financial services, claims management activities or regulated legal services. Nothing in this article should be construed as legal, financial or investment advice. This content is provided for general information and public-interest reporting only. Readers should consider obtaining independent professional advice regarding their own circumstances where appropriate.