If your clients become insolvent you will need to take urgent action. There is a risk that you might end up not getting paid for your work and there is a lower, albeit more material, risk that you might not have a client and as such could incur liability personally or for the firm if others rely on your warranty that you act for a client, when you do not.
Insolvencies of individual clients and corporate clients are treated differently. Where you act for joint clients, note that the insolvency of one of them will be sufficient to trigger the effects noted below for all clients in that retainer.
Bankruptcy of individual clients
There are two types of retainer when it comes to bankruptcy. Those which are assets, and so where the trustee acquires the power to deal with them, and those which are purely personal (eg personal injury, regulatory matters, defence of a claim), where the trustee does not acquire a power to deal with that matter.
The client can of course terminate our retainer at any time. Given bankruptcy is a material change, the firm's terms contain a termination right on notice in the firm's favour. Accordingly, you should review if your retainer remains with the bankrupt. If it does, then you should review how the matter will be funded. Friends and family might assist, if so, you can carry on acting. If not, you should terminate.
Where the trustee has a right to take over the matter, then you should serve a notice of termination and invite the bankrupt to have the trustee get in touch (to the extent the trustee has not already contacted you directly). When dealing with the trustee, you can address on what terms you would be willing to act and further have the trustee arrange for the bankrupt to allow access to their file. Trustees do not have an automatic right to the pre-liquidation parts of the file and in the absence of consent from the bankrupt, you should seek guidance from the Director of Operations and Compliance. If you are going to be instructed, you will need to open the trustees as a new client (with new AML checks) and a new matter.
Insolvencies of corporates
Where the client is a body corporate which enters an insolvency process (administration, liquidation, or other relevant procedure), the directors lose their authority to bind the company. The liquidator has a right to disclaim or terminate our retainer and you have a right (in our terms) to terminate. In all cases, we should terminate (or agree to be terminated). If new terms are agreeable, then you can enter a new retainer with the liquidator. You will need to be clear on how the matter will be funded.
As the client is the body corporate, the file remains with the client and those with power to control the body simply change from directors to the liquidators. Accordingly, with a liquidation, you do not have to arrange for the liquidators to access the pre-liquidation parts of the file. If you are going to be instructed, you will need to open the liquidators as a new client (with new AML checks) and a new matter. For foreign insolvencies, these concepts are likely still to apply, but each jurisdiction will need to be checked. Contact the Director of Operations and Compliance if so.
Active litigation involving a client which becomes insolvent
There is a particular issue for insolvencies that occur during ongoing litigation. This relates to a slight disconnect between the need to come off the court record and the reasonable need of the trustees/liquidators to have a few days with you in place while they work out whether to instruct you. So, where you are sure that you will not be instructed, or, where you are not instructed and five days has elapsed after your learning of the insolvency and asking the office holder what they wish to do with the litigation, then you must apply to come off the record. You do not have to apply to come off the record where you are sure that the office holder is making arrangements to instruct you, so long as during your period of being without instructions, there is no action which you must take on behalf of your client. Taking such action would be a representation that you act for the client, but at such times you would not know if you did. Accordingly, you can wait a short time, but not act in any way. If action is required, then you must come off the record.