Teaming with a Litigation Funder to Maximize Trust Recoveries

Teaming with a Litigation Funder to Maximize Trust Recoveries

Chapter 7 or post-confirmation trustees looking to maximize the value of their claims gain significant advantage when they partner with litigation funders. Even scenarios where contingency counsel are engaged or being strongly considered are ripe for the infusions of non-recourse capital that funders provide.

At Bentham IMF, we partner with trustees and contingency counsel to help manage expenses and maximize recovery on valuable trust and estate claims. In our view, partnering with a funder provides all stakeholders—trustees, counsel, funders and creditors—with the potential for greater recoveries and payouts while substantially reducing risk.

For a law firm working on contingency, representing a chapter 7 estate or litigation trust may involve putting significant funds at risk to pay for outside experts, discovery and court costs, and other expenses, with no guarantee that the firm will be repaid. If costs grow too onerous and litigation drags on, contingency counsel may feel pressure to spend less time and money on a case, potentially sacrificing on the quality of experts, to reduce their firm’s financial exposure.

An injection of litigation funding helps debtors and trustees shoulder out-of-pocket costs, relieving the pressure on contingency counsel. With a funder in their corner, contingency counsel can pursue meritorious litigation with the highest quality resources and the best chance of success.

Moreover, law firms that are less comfortable with contingency work can be paid a significant portion of their hourly fees by a funder working in collaboration with a trustee. This type of arrangement allows all law firms, regardless of their appetite for contingency work, to compete for trustee engagements on equal footing.

A Critical Issue for Trusts

Funding allows parties to pursue claims on the merits to the best possible outcomes, rather than abandoning them outright or settling for pennies on the dollar due to a lack of financing.

From the perspective of a trustee, having a funder assume the expense of litigation preserves the other trust assets for distribution to creditors. Litigation funding is non-recourse, meaning the funder is repaid only if the case is resolved successfully through settlement, award, or judgment. In the event of an unfavorable outcome, the trust owes the funder nothing.

Well-funded, a trustee can level the playing field against moneyed defendants who may try to drive an unfair settlement by outspending the trustee and its counsel. For instance, a defendant—aware that expenses are mounting for a contingency firm—may attempt to overwhelm a trustee with frivolous discovery practices, repeated requests for continuance, and other dilatory litigation tactics. Funding, however, gives the trustee the resources to fight back.

Trustees should bear in mind that funding can be used for purposes other than litigation. For example, funding can be used to pay for a trustee’s operating expenses, to progress non-litigation assets to sale, and for pre-confirmation investigations.

Unless you are satisfied obtaining the minimum value on your claims, contact us for a consultation about how partnering with a funder can potentially maximize your recoveries.