While many have celebrated the start of the New Year filled with hope, one expert believes that 2021 will be difficult for directors, officers, and their advisers due to a projected increase in insolvency claims against them.
“The view from specialists across our network is that while legislative measures such as the UK’s Corporate Insolvency and Governance Act 2020 have offered some protection to directors of companies facing financial difficulties, insolvency claims will be a strong driver of D&O risk in 2021,” said Simon Konsta, partner at Clyde & Co. London.
Konsta also noted in a statement that as the number of COVID-19-related insolvencies rises, the next 12-18 months will likely see more claims against solicitors, accountants, auditors and property professionals.
Aside from anticipating a surge in insolvency claims, Konsta also compared current conditions to the last global financial crisis of 2008. According to the expert, current companies and the professionals that advise them are “definitely better run” now than in 2008 thanks to tougher regulator regimes. But at the same time, businesses now face raised expectations – and the public will not hesitate to find someone to blame if those expectations are not met.
“Fuelling stakeholder expectations that ‘someone’ must be made to pay for corporate failure are the litigation funders who are increasingly ‘baked in’ to the claims lawyers’ business model and therefore much more likely to be a driver of liquidator and third-party claims against professionals in 2021,” added Konsta.
Konsta said that litigation funding cannot be called a “game changer” at this point, especially when many cases are anticipated. However, the Clyde & Co. partner expects that a higher volume of funded insolvency claims will have “important practical and strategic implications for businesses, their advisers and ultimately their insurers.”
