This guide is maintained as a current resource for September 2026 and covers only the laws of England and Wales. Information is for general guidance, not legal advice. Consult a qualified solicitor for advice specific to your situation.
Learn what happens to public liability claims in England and Wales when a defendant becomes insolvent. This guide explains statutory rights under the Third Parties (Rights Against Insurers) Act 2010, enforcement challenges, limitation periods, and practical steps for recovering compensation when an insolvent defendant's assets or insurance are involved.
A public liability claim arises when someone injured or financially harmed because of another's negligence seeks compensation through the civil legal system. Common examples include trips and falls in public places, injuries from falls due to poor maintenance, or property damage caused by poorly maintained premises. Sometimes the party against whom a claim is made (the defendant) becomes insolvent - unable to pay its debts - during or after a claim. This situation raises complex legal and practical questions about whether compensation can be recovered and how the legal process proceeds. This guide explains how the law in England and Wales addresses public liability claims involving insolvent defendants, the statutory rights claimants may have, enforcement challenges, time limits, and practical steps claimants may consider.
What Is Insolvency in the Context of a Public Liability Claim?
Insolvency occurs when an individual or company cannot meet its financial obligations as they fall due. For a company, this typically leads to winding‑up, administration, or entry into a formal insolvency process. Insolvency may affect a defendant during a public liability claim and can influence how and whether compensation is recovered. Insolvency can mean:
- A business enters administration or liquidation.
- A company passes a resolution to wind up.
- A business is formally dissolved.
- An individual enters bankruptcy or an individual voluntary arrangement.
These processes restructure or distribute assets to creditors under UK insolvency law.
Can a Public Liability Claim Still Proceed When the Defendant Is Insolvent?
Yes. A public liability claim does not automatically end because the defendant becomes insolvent. Claimants may still pursue their claim through the ordinary civil court process to seek a judgment for compensation. However, obtaining a judgment is only part of the process: enforcement - ensuring that a successful judgment results in payment - can be challenging if the defendant lacks assets or funds.
Where the defendant had public liability insurance at the time the liability was incurred, specific statutory rights can assist the claimant in enforcing compensation even after insolvency. If there was no insurance, or the insurance does not cover the liability, enforcement may depend on available assets and creditors' priorities within the insolvency process.
Statutory Rights Against Insurers: The Third Parties (Rights Against Insurers) Act 2010
The Third Parties (Rights Against Insurers) Act 2010 (“the 2010 Act”) provides a statutory mechanism for claimants to pursue compensation from the defendant's liability insurer when an insolvent defendant's liability was covered by insurance. The 2010 Act came into force on 1 August 2016 and modernises earlier law that was less effective for claimants.
How the 2010 Act Works
Under the 2010 Act:
- A third party (such as a claimant) may bring a claim directly against the insurer when the defendant (the insured person or company) is insolvent and had liability insurance covering the loss. The claimant can seek a declaration from the court that the insured was liable to the claimant and that the insurer must indemnify that liability.
- This right exists whether the insolvency event (such as liquidation or administration) or the insured liability occurred on or after 1 August 2016.
- The claimant does not need to restore a dissolved company solely to sue it before pursuing the insurer.
- The insurer can raise the same defences and rely on the same policy terms that would have applied against the insured, including limitations, conditions or exclusions.
This approach allows a single legal action to determine both the underlying liability and the insurer's obligation, saving time and reducing procedural complexity. It also gives claimants access to information about the insurance policy early in the process, such as policy terms, insurer identity, and cover limits.
Limitations and Practical Effects
While the 2010 Act provides a statutory avenue to recover compensation via the insurer, there are important practical limitations:
- A claimant's right is no greater than the defendant's rights under the insurance policy. If the policy excludes certain types of loss, contains strict conditions, or imposes deductibles, these may affect recovery.
- Insurers may be entitled to set off amounts the insured owed them, such as unpaid premiums, against any sums due to the claimant.
- The claimant must still prove the underlying liability to the enslvent defendant alongside proving that the claim falls within the scope of the insurance policy's cover.
- If the defendant had no insurance or the liability was not covered by any valid policy, the statutory route under the 2010 Act will not apply.
If There Is No Insurance or the 2010 Act Doesn't Apply
If the insolvent defendant never had insurance covering the relevant liability, or if the situation falls outside the scope of the statutory rights (for example, a liability arising entirely before 1 August 2016 where the old law still applies), claimants may face significant challenges:
Unsecured Creditor Status
In insolvency proceedings, unsecured creditors (including unpaid claimants) are typically paid after secured creditors and costs of the insolvency process. If the insolvent defendant has few or no assets, unsecured claimants may receive only a portion of any compensation or none at all.
Enforcement Against Defendants With No Assets
Where there is no insurance and the defendant's assets are insufficient, a claimant may need to consider enforcement options such as obtaining a charging order over property, applying for an attachment of earnings order, or appointing enforcement officers. These options, however, depend on whether the defendant actually possesses assets or income that can satisfy a court judgment.
Time Limits and Procedural Considerations
Standard time limits for personal injury or public liability claims continue to apply even when a defendant is insolvent. Under the Limitation Act 1980, claimants usually must issue proceedings within a specific period (often three years from the date of the injury or knowledge of the injury). Failing to act within the limitation period can extinguish the right to compensation regardless of insolvency status.
When pursuing a claim under the 2010 Act, the claimant should also pay careful attention to limitation rules, as insurers may raise limitation defences if the cause of action accrues outside the permitted period.
Practical Steps for Claimants
If you are pursuing a public liability claim where the defendant has become insolvent:
- Confirm Insolvency Status – Establish whether the defendant company or individual is subject to insolvency proceedings, such as liquidation or bankruptcy.
- Identify Insurance Cover – Seek information from the defendant, insurers, brokers, or insolvency practitioners about any liability insurance that may apply. The 2010 Act provides mechanisms to obtain such information.
- Issue Proceedings Promptly – Ensure claims are started within applicable limitation periods to preserve rights.
- Consider Direct Claims Under the 2010 Act – Where the 2010 Act applies, prepare to include the insurer as a defendant in proceedings to determine both liability and indemnity in one action.
- Prepare for Enforcement Challenges – If insurance does not apply, or if the defendant has insufficient assets, legal enforcement measures or insolvency claims may be necessary.
Common Questions
Can a claimant recover compensation if the defendant company is dissolved?
Yes. If the company was insured and the liability falls within the scope of the insurer's policy, the claimant can pursue recovery directly from the insurer under the 2010 Act without restoring the company.
Does insolvency stop a claim proceeding?
No. Insolvency does not extinguish a claimant's cause of action, but it may complicate enforcement if there is no insurance or sufficient assets.
Will insurers always pay under the 2010 Act?
Not always. Insurers can rely on policy terms and defences, and recovery may be limited to the terms and limits of the insurance policy.
What if the 2010 Act does not apply?
If the statutory rights do not apply (for example, where liability arose and insolvency occurred before 1 August 2016 under the old law), claimants may need to restore the defendant company to the register or pursue enforcement through insolvency claims, which can be costly and complex.
Key Takeaways
Public liability claims against insolvent defendants in England and Wales present practical and legal challenges. The Third Parties (Rights Against Insurers) Act 2010 provides a statutory mechanism for claimants to pursue compensation directly from an insolvent defendant's liability insurer where applicable, simplifying the process and avoiding the need to restore defunct companies. Claimants must confirm liability, identify insurance cover, adhere to limitation periods, and understand policy terms and limitations. Without insurance or sufficient assets, enforcing a judgment may be difficult, and claimants may receive limited or no compensation.
