Litigation Funding for Insolvent Estates

When you think of it, litigation funders and Insolvency Practitioners are a match made in heaven. Think of it this way: the claimant and the Insolvency Practitioner often have valuable legal claims but limited funds, while the litigation funder has the funds to back and reinforce the claims. And this makes them a successful pairing, and, in most cases, the outcome benefits all involved.?

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Insolvent estate claims carry the definitive example of a cash-strapped claimant. Although the claims may be valuable, coming up against deep-pocketed defendants, without the resources to pursue the claims, often means settlements are reached that don't reflect the actual value of the claims. So, it benefits both Insolvency Practitioners, claimants, and creditors to seek litigation finance to claim damages.?

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This article examines how Insolvency Practitioners can work with litigation funding to pursue claims.?

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Why Litigation Funding Makes Sense for Insolvent Estate Claims

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Insolvency Practitioners look after the best interests of creditors, which will almost always involve pursuing the estate's claims. Because of this duty, seeking a financially beneficial method of financing the estate's claims makes good business sense. Although turning to the creditors themselves can be logical, as a creditor may have a source of funds, they are often averse to the risk involved in litigation. This is when seeking a reputable litigation funder makes the most sense. In more complicated cases, the Insolvency Practitioner may also deal with various creditors with competing interests and requirements, making things difficult.?

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Using a litigation funder will help make the process easier and more likely to succeed. With a litigation funder's substantial capital, positive outlook toward the risk of litigation, and experience in bringing legal claims, the insolvency practitioner is in good hands. As a bonus, when choosing this route, the Insolvency Practitioner will have to only deal with one funder instead of a group of creditors.?

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What's Important to Litigation Funders?

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The litigation funding process is quite simple in itself. Although funders have relationships with law firms and work alongside them, the agreement to fund a case is always made with the claimant. The funding does go to the law firm through which the claimant receives counsel. And, as we've mentioned before, the funder is a passive investor. Litigation funders do not dictate case strategy or settlement; they simply provide capital. Although litigation funders are invested in the case and will request updates from counsel, they do not interfere in the relationship between lawyer and claimant.?

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Let's take a look at the three main steps in the process, from initial conversation to financing a case.?

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1. Intake

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Surprisingly, initial case discussions between the claimant, legal counsel, and the litigation funder can take anywhere from one to two weeks. That includes organizing the non-disclosure agreement and term sheet negotiation. If the parties find it difficult to reach a deal quickly, the intake process may take longer.?

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2. Diligence

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Advantageous representation:?Deciding on litigation funding is similar to the diligence process a law firm will go through to determine whether to take a case or not. The aim of this initial part of the diligence process is to understand the risks and possible upsides of the case. The parties, the dispute, the facts, and the regulatory law for the particular case will be reviewed, and if a claim seems likely to succeed and result in a significant return, it's a go. The possible defenses that will be raised and the potential obstacles are also considered.?

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The likelihood of damages:?Next, a litigation funder will consider the odds of collecting damages. This includes working through the theories and application of the damages. These need to be realistic and based on industry norms or previous cases. Next, funders will consider the differences between the damages and the amount of funding being requested. If the difference is too narrow, it won't be a financially sound decision. The funder will also consider the timing of the potential settlement. The value will substantially decrease if it takes too long to resolve the case.?

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Reviewing the law firm:?The litigation funder must consider the experience, expertise, track record, and resources available to the law firm. If the legal counsel at the law firm has a great history of winning similar claims, the decision to back the suit is easier. The law firm's pricing structure and whether they are interested in contingent participation in recovery are also considered. This participation signals how strongly the law firm believes in the claims.

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All about the budget:?For litigation funders to ensure the budget is realistic for bringing the case to fruition, they need a breakdown of the financing of the fees and disbursements. This way, they know whether the budget needs to be adjusted. Often a funder will suggest an increase in allocation to ensure there are enough resources to complete the lawsuit.?

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Enforcement risk:?A vital step in the diligence process is understanding whether there is a enforcement risk as some foreign or insolvent claimants bring about uncollectible sentencing. If the claim is sympathetic and the general principle of equity is at play, there's less risk involved.?

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3. Approval

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Once the process of diligence is finalized by the litigation funder and a conditional agreement is completed, the investment will often need committee approval. In this case, further investigation occurs, which only increases the ability to understand each aspect of the claim, the risk factor, and whether the budget is appropriate even more. Once this is done, the funder will approve the agreement and fund the claimant.?

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If you want to stay up-to-date with what is going on with non-recourse litigation funding, Wild Dog serves as a trusted advisor to attorneys and their clients who are exploring litigation financing. So follow our Linkedin Page for the latest updates on?https://www.dhirubhai.net/company/wild-dog-mu ?or visit our website?https://wilddog.mu ?for more.