Insolvency, ATE insurance and paying an adverse costs order (Premier Motorauctions Ltd (in liquidation) v PricewaterhouseCoopers LLP)

Insolvency, ATE insurance and paying an adverse costs order (Premier Motorauctions Ltd (in liquidation) v PricewaterhouseCoopers LLP)

The fact of a company’s insolvency will not, where an after-the-event (ATE) insurance policy exists, be sufficient for a court to automatically conclude that a company will be unable to pay any adverse costs order, the High Court has ruled. Matthew Weaver, a barrister at St Philips Stone Chambers, analyses the case and outlines lessons it provides for practitioners.

Original news

Premier Motorauctions Ltd (in liquidation) and another v PricewaterhouseCoopers LLP and another [2016] EWHC 2610 (Ch), [2016] All ER (D) 154 (Oct)

The Chancery Division, in dismissing the defendants’ application for security of costs in respect of proceedings brought by the claimant insolvent companies, held that where there was an ATE insurance policy in place, the question, under CPR 25.13, was simply whether there was reason to believe that the insurer would not pay under the policy when called upon to do so. In the present case, the claimants had obtained ATE insurance policies and the defendants had failed to satisfy the court that there was reason to believe that they would be unable to pay the defendants’ costs already incurred and of the initial stages of the proceedings if ordered to do so. Accordingly, the jurisdictional threshold under CPR 25.13 had not been crossed.

What was the background to this application?

The claimants are both companies in liquidation, having previously been in administration. Prior to liquidation, the companies traded as a car auction business, a seller of unique registration plates for the Driver and Vehicle Licensing Agency and, to a lesser extent, a commercial land developer. Two years prior to administration, the claimant companies experienced cash flow problems and sought additional funding from its bank, Lloyds. At the same time, PricewaterhouseCoopers (PwC) introduced the companies to a Mr Warren who, PwC said, would act as a non-executive director to assist with the companies’ cash flow problems. The companies traded on for around two

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