New law set to allow claims against insolvent companies & directors

A new Bill designed to allow the victims of accidents in the workplace to seek compensation after their employers become insolvent has been published this week. Specifically, the Third Parties (Rights Against Insurers) Bill would enable claimants to pursue the insurers of third parties that were themselves insured but have since become insolvent, which typically means that they are subject to a winding up order, bankruptcy or that an official receiver has been appointed to manage the business assets. Indeed, under existing law, the assets of an insolvent company would be distributed amongst its creditors in a strict priority order: liquidation fees, preferential creditors such as employees who have outstanding wages, floating charges, unsecured creditors, interest payable on debts and then the shareholders of the company itself. In other words, personal injury claimants of an insolvent company (or person) would not be included in the distribution.

At this stage, the law of tracing becomes ultimately very difficult and ambiguous, whilst the courts would also experience difficulties in finding liability where the defendant cannot be easily identified. Indeed, the members of an insolvent company will normally escape liability for many of its debts, so there is little reason to think that a person injured in the workplace could easily and successfully pursue claims against an individual member of a company, which is afforded its own identity in law, that no longer exists. Accordingly, the injured employee of an insolvent company or individual person has always faced considerable difficulty in establishing any kind of personal injury claim against an unknown party.

However, if the Third Party (Rights Against Insurers) Bill is passed, claimants would be able to pursue the insurers of the insolvent company or individual person directly. In this respect, the Bill enhances the existing law that is embodied in the Third Parties (Rights Against Insurers) Act 1930, which provides that a claimant can recover damages from an insurer under the liability policy so long as the liability of the insured party had been established beforehand. If this were not the case, separate proceedings would be required to establish liability, whilst, in the event that the defendant company had been made insolvent, the claimant would have to petition to have the company reinstated before proceeding with the personal injury claim. Thus, the Third Party (Rights Against Insurers) Bill is designed to eliminate the need for separate proceedings to establish liability.

Furthermore, the Bill provides for changes that would allow an insurer to be identified at an early stage of the proceedings, which is of significant benefit to personal injury claimants. Indeed, the Bill is designed to promote increased certainty in the law whilst encouraging access to justice generally in so far as claimants will know whether or not a direct claim against an insurer is possible at an early stage. However, the Bill does not properly legislate for insurers whose identities are unknown, although various other statutes are designed to promote greater efficiency and transparency in this respect.

Nevertheless, the Third Party (Rights Against Insurers) Bill is likely to have a profound effect on personal injury claimants, who would become far better equipped to pursue compensation from companies and individuals who have become insolvent. As the Justice Minister Bridget Prentice advised, the Bill would help to ensure that “victims are able to settle rightful compensation claims in as inexpensive and unstressful a way as possible – even if the wrongdoer has gone bust”.

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