MOFS Guide to Legal Indemnity Insurance - Flipbook - Page 18
Insolvency Act indemnity policies are designed for the situation where
a property (residential or commercial) has been transferred at less than
its true value or where, for example, the deposit has been provided by
someone other than the buyer. The risk covered is if the transferor (or
deposit payer) becomes bankrupt or insolvent and the transfer may then
be set aside under the Insolvency Act.
There are occasions when a client/developer may not want to delay
commencing its development once planning has been obtained until after
the statutory period, during which applications for judicial review of the
planning decision has expired.
Insurers will generally look to offer cover in the following situations:
1. A current transfer at undervalue, where cover would be offered on a
lender only basis.
previous transfer at undervalue, where the property is now being sold
for full market value. Cover here would be available to cover been the
purchaser and the lender.
company transfer, where the insurer’s exposure depends on the
relationship between the transferor and transferee.
Losses that can be covered include, but are not
• The cost of defending/participating in the proceedings.
Insurers will need to know which option fits: if the risk relates to an
individual, insurers will require a bankruptcy search to be carried out; if it
instead relates to a company, then they will ask for sight - and a copy - of
the company accounts from HMRC.
• The expense of complying with an Order.
Insurers will need to know:
•Reduction in market value of the land (with or without the benefit
• The reason for the transfer at undervalue.
Cover can also be extended to cover certain Delay Costs which may be
incurred if the development is stopped as a result of the proceedings,
such as interest on monies borrowed for the works, contractual penalties
incurred, wages of staff and hire costs.
• If the parties within the transaction are connected.
•If a clear bankruptcy search against an individual or current accounts for
a company are available.
In those situations, it is possible for the client to protect itself against
potential claims by seeking Judicial Review Indemnity Insurance which can
be taken out once the planning consent has been obtained and remains
in place for, say, six months, until the period for making an application for
judicial review or challenge in the High Court has expired.
• Professional fees which are rendered abortive after the Order.
•Capital Sums contracted for or expended for construction works which
are rendered abortive by an Order.
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