There Might Be Instances Where Debt Might Remain Valid Even After Bankruptcy

When a person is unable to pursue a claim against someone who has been made bankrupt on account of the bankruptcy having been discharged, it may still be possible to pursue the claim against the bankrupt’s insurers, following a recent ruling.

The case involved 12 claims for breach of trust against nine solicitors and a Mr Dixit Shah. It was brought by the Law Society and 19 of the various clients of the solicitors. Mr Shah had acquired several solicitors’ firms. Allegations had been made that a total of £12.5 million had been misappropriated by Mr Shah from the client accounts of these firms. Three of the solicitors were subsequently made bankrupt and then discharged. The Law Society’s compensation fund made various payments to the aggrieved clients, totalling £12.5 million. Since the bankrupts no longer had professional indemnity insurance, cover was effectively provided by the Law Society.

However, because the three bankrupts had been discharged, the Law Society was unable to pursue a claim against them. For this reason, the Law Society attempted to make a claim against their insurers under the Third Parties (Rights Against Insurers) Act 1930, in order to recover monies paid out from the compensation fund in respect of the bankrupt solicitors’ clients. To do this, it was necessary to prove that the claim against the insured was no longer disputable.

Although the effect of the discharge of bankruptcy was to refute the Law Society’s incomplete claims, it was possible to elevate those claims to the status of ‘established’ simply by the admission of the claim in bankruptcy. It follows that although a right to pursue an action against a debtor was lost once the debtor had been discharged from bankruptcy, this did not mean that the underlying cause of action was destroyed.

The ruling allowed the Law Society the means of demonstrating that the discharged bankrupts were liable to the various clients, by simple proof of debt. Once this had been done, the Law Society would then be able to pursue the insurer directly. “This decision has far-reaching implications in such cases,” says Law Firm Pinder Reaux and Associates. “The circumstances of this case are very unusual, but for clients of solicitors it provides the reassurance that in the very unusual event of the bankruptcy of a solicitor who is the subject of a claim, the claim can still be pursued.

Not all people offering professional advice are insured. Solicitors must have appropriate insurance arrangements in place in order to protect their clients.”

Partner Note 

Times Law Report. Published December 20, 2007. Law Society of England and Wales and Others v Shah and Others, before Mr Justice Floyd, Chancery Division – Judgment November 30, 2007.

Pinder Reaux & Associates

Business Services News

Read Next


What people say

"We shall, no doubt, be engaging you again soon"

"The matter was concluded very successfully and I’d like to thank John and Wilson again for their helpful and highly professional work earlier this year."

Alex Bailey, Trichromic LLP'

"Great Source of Support"

"You have essentially achieved what we had set out to do. Thank you for all of your assistance in this matter. Throughout this ordeal, you have been a great source of support."

Mary Anne Poutanen, Canada

"I could not have chosen a better firm to represent me."

"You provided the key essentials (and more) for client satisfaction. I am extremely pleased with the services provided by your company and the legal team provided for me. To also turnaround my situation making it a positive outcome, I could not have chosen a better firm to represent me."

Marvyn Smith, London

"I would recomend this service to anyone who has a legal matter"

"I'm so glad I had this advice before my CMD. I was very much prepared and think my company (whom I'm taking to a tribunal) were shocked at my knowledge. I would recommend this service to anyone who has a legal matter."

Jacqueline Stevenson, Bristol

"Can’t wait for another session!"

"John Spyrou kindly offered to provide our publishing firm with an update on libel and defamation law. Those who attended - a mix of veteran editors and those new to the world of journalism - all said how practical and useful they found the training – and now can’t wait for another session!"

Paul Snell, Redactive Media Group

"Highly recommended"

"Alana & Pinder Reaux’s level of service has been exceptionally high. Always keen to help out with the work in an efficient manner. Highly recommended."

Trading Point of Financial Instruments UK Ltd

"Fast and Reliable"

"Fast and reliable notary service for notarisation/legalisation of College reports for foreign office and embassies."

Student Services Department, CATS College London

"One step ahead of the opposition"

"'John Spyrou has the ability to pre-empty arguments and see issues before they arise, thereby allowing him to be one step ahead of the opposition’"

Christopher Bovey, Angelbird Technologies GmbH