Popularity of litigation funding for insolvent companies continues to grow
A recent article in the Law Times provides a timely update to the Canadian bar on the demonstrable benefits of litigation funding. It recognizes that judicial approvals of such arrangements show us “the direction that the courts are going” in Canada, particularly when it comes to litigation funding of insolvent or bankrupt plaintiffs.
The March 2018 CCAA Bluberi decision (currently under appeal) is used as a framework for the article. There, the Quebec Superior Court approved litigation funding by Bentham of an insolvent company (see our write-up on the case here).
Leading restructuring and insolvency practitioners are quoted throughout the article. They make the following observations about litigation funding in the insolvency context:
- Litigation funding unlocks assets to help unsecured creditors obtain a recovery:
- “There are numerous times where insolvent companies, once they’ve liquidated the business, may only have as an asset residual litigation, which would often not be acted upon.”
- In Bluberi, Bentham’s funding provided working capital to fund a lawsuit in order to create an opportunity for the unsecured creditors to get a recovery. “It created a recovery where there was none before.” The decision “reaffirms the utility of litigation funding in an insolvency context to create assets to fund a plan.”
- Litigation funding helps spurn the development of case law:
- In Bluberi, interesting issues were litigated when they otherwise could not have been. “That’s helpful to the creation of the jurisprudence. … If various issues are not being dealt with in the insolvency context because there is no practical reason to do it on the resources that are available without funding, that jurisprudence never comes into existence.”
- Litigation funding provides access to justice for an insolvent company and its creditors:
- “The courts don’t want the inability to fund meritorious litigation to be a barrier to justice and to recoveries for creditors. … Third-party financing provides access to the litigation process for companies in the case of insolvency [who] otherwise wouldn’t be able to fund those meritorious claims.”
- Litigation funding by an experienced funder can provide valuable insights into potential litigation:
- A reputable funder like Bentham—who “has been an innovator in the field of litigation funding”—is “able to assess the merits and value of litigation”, which other financers cannot do.
- Bentham’s funding arrangement in Bluberi “sets out the principles that the court is going to look for in these arrangements, so that parties can feel more comfortable that these arrangements will otherwise be enforceable and approved by the court. … That is a very helpful guide” for the negotiation of litigation financing agreements.
To learn more about litigation funding or to discuss whether a specific circumstance could benefit from funding, please contact us.