Litigation Finance as a Tool for Bankruptcy Trustees

When a company becomes insolvent, it can be difficult for a bankruptcy trustee or liquidator to find the resources to pursue claims that the company might have.   Litigation finance companies can be one place to find such resources.  A current case in Australia illustrates as much.

Recently, the Australian whisky company, Nant Distillery, collapsed, owing an estimated $4.9 million to creditors.  Its liquidator, Deloitte, discovered evidence suggesting that the former distillery company had been trading insolvent for years.  According to Deloitte’s Richard Hughes, “Investigations regarding the company’s affairs revealed [it] may have been insolvent from as early as 30 June 2014.  Moreover, the investigation revealed that Nant’s executives may have engaged in a variety of fraudulent activities, knowing that the company was insolvent.

Perhaps unsurprisingly, some of the parties involved in this scheme have been uncooperative with the liquidator’s efforts to unravel Nant’s finances.  This puts the liquidator in the position of needing to pursue legal claims in order to recover misappropriated assets, but, of course, because the company is insolvent, it can be hard to fund such litigation.

In the Nant case, Deloitte has considered solving this problem by reaching out to a litigation funder.  An investment from a litigation funder would permit Deloitte to pursue claims on Nant’s behalf with no risk of loss.  If the claims failed, the cost would be shifted to the funder.  And if the claims succeed, Deloitte would recover something substantial, even if it has to share that recovery with the funder.

This logic would apply to any bankruptcy trustee who needs to pursue claims on behalf of an insolvent debtor.  Litigation funding is more than just a way for personal injury plaintiffs to fund their cases.  It has a variety of applications in different procedural contexts, and it can be an invaluable tool for achieving a just result.

Topics: litigation finance, legal reform, third-party funding, litigation costs, alternative litigation finance, bankruptcy

 Works Cited:  Patrick Billings, Deloitte Liquidator Claims Nant Directors May Have Been Trading While Insolvent, The Mercury (Dec. 2, 2017) available at http://www.themercury.com.au/business/deloitte-liquidator-nant-directors-claims-may-have-been-trading-while-insolvent/news-story/c9a15465fb2b3729c474ee38370524b2