In general, the Financial Services Compensation Scheme confirms claims are always pursued with insolvency practitioners such as liquidators or administrators where there is a prospect of dividends to creditors.
Usually, the FSCS states it ranks as an unsecured, ordinary creditor, although there may be exceptions - in some investment firm failures, FSCS may be able to assert a trust claim, for example in respect of client money or assets, and (from April 2003) direct policyholders (including FSCS) have a priority status within the class of unsecured creditors of insurers.
Although claims in the estates of failed companies are generally cost effective to pursue, the FSCS states it applies a risk/reward analysis to recoveries, in particular third parties claims.
Where appropriate, the FSCS states it will compromise or abandon recovery claims if the likely costs are not justified by the merits of the claim and the potential recovery.
The ability to make recoveries is dependent upon claimants assigning rights against the firms in default and third parties, the FSCS points out.
FSCS then “stands in the shoes” of the claimant. An assignment of rights is required by FSCS in most cases.
However, if the FSCS decides not to pursue any recovery, at the claimant’s request it reassigns the claim to the claimant.
Recovery claims are not pursued as a deterrent to any market practice or as quasi enforcement action, a spokesman for the FSCS claims.
