In your shoes: litigation funding for insolvency practitioners
How does litigation funding work for an insolvency practitioner? We’ve worked with many insolvency practitioners in the past, and we know from experience that your biggest concern is getting your hands-on assets, and getting them quickly. There is rarely time to waste when managing an insolvency case.
Third-party private equity investment offers many benefits to both the creditors and you as an insolvency practitioner. Funding allows you to pursue a case fully and maximise the chances of success. And if you have an experienced litigation funder like Redress on board, who only accepts meritorious claims, your chances are boosted. Often claimants are taken more seriously with the backing of a litigation funder.
In this post, we’ll take you through a typical scenario you as an insolvency practitioner may experience. From working with a commercial litigator, approaching creditors and bringing a litigation funder like Redress Solutions on board.
Step by step: litigation funding for insolvency practitioners
Let’s look at a typical scenario, a fictional case, to illustrate the process.
Insolvency case: You have accepted the appointment to ABC Manufacturers, a supplier of homewares to CDE Retail. CDE is dominant in their market, and 40% of ABC’s sales are via CDE Retail. Your client, ABC, had been working successfully with the retailer for a number of years until CDE started placing unreasonable demands on them. First, they demanded listing fees to stock ABC’s products, then they extended their payment period for future and outstanding invoices. Further to this CDE Retail gave themselves a 5% discount for early payment. This impacted ABC’s cashflow and therefore they went into insolvent liquidation.
Pursuing litigation – the ideal scenario
You take office and find that ABC has a reasonable amount of cash at bank and realisable stock to fund the beginning of proceedings against CDE Retail. Upon hearing this, a creditor, one of ABC’s suppliers and a FTSE 100 company, is so outraged by CDE’s actions that they agree to fund the action until trial.
This is a short and perfect scenario for you and ABC, but how often does this happen? Not very! Funding a case like this is expensive, and even though your creditor has the best intentions at heart, they will likely run out of patience and stop funding you.
Pursuing litigation – the realistic scenario
- Find a commercial litigator. After accepting the appointment, you contact a commercial litigator that you regularly work with. They review the case and upon your request produce an opinion and a case for ABC’s action against CDE. They confirm you have a solid case to take to the High Court and they provide an indication of the budget required. You then approach Redress Solutions to seek funding for your action.
- Claim reviewed by Redress Solutions. Within two working days, we review the claim, offering you funding terms and agreeing in principle to fund your case based on the prospects of a successful recovery. From this point, we will allow you, as the insolvency practitioner, to instruct the commercial litigator that has already worked on and reviewed the claim. This approach allows you to work with the solicitors you trust with the full support of a litigation funder.
- Review funding terms. Once we have agreed in principle to fund your case, you should review our funding terms. They offer protection to you, the insolvency practitioner since we automatically indemnify you against adverse costs if you lose the claim. The indemnity is backed by an ATE insurance policy, underwritten by a major insurer for an amount that comfortably covers the costs of litigation against CDE Retail.Furthermore, Redress, as the litigation funder, can also take an assignment of the claim and take proceedings using your own solicitor. This takes you and your firm completely out of the firing line for adverse costs. You will receive the same share of the proceeds if the claim succeeds with Redress suing as if you’d taken the action on yourself.
- Agree on litigation funding approach with creditors. One important part of this process is to approach the creditors to get their agreement first. They must be offered the opportunity to fund the case themselves, and if they want to do this then you need to provide them with all the details of the anticipated legal costs now. They must fund the whole claim; you can’t afford to accept a partial payment as it may force you to discontinue the claim later on – exposing you to paying CDE’s costs of the claim.If the creditors do decide to fund the claim then you may also choose to ask them to pay for an ATE insurance policy. However, this will still not cover you if you need to withdraw should the creditors cease funding. This is a likely scenario; they may do this since they have already lost money through ABC’s insolvency and get tired of ‘throwing good money after bad.’
- Proceed with litigation funding. The most likely situation is that the creditors refuse to provide you with the necessary finance. At this point, it is wise for the creditors to authorise you to enter the litigation funding agreement with Redress Solutions as being the only way of getting some money back from CDE Retail.
You are now in the best situation to pursue the claim fully against CDE Retail and make a substantial recovery.
A strong foundation for litigation
Financing litigation, as an insolvency practitioner rather than a business owner, offers up many uncertainties, so a strong foundation is needed. You could attempt to fund the claim with the help of the creditors but this has a high chance of failure. Simply, they are more likely to run out of money, patience or faith in the claim.
By taking on a litigation funder like ourselves you can access the best terms for your action. You may wish to find better terms elsewhere, but we believe we offer the most attractive and practical option.
We can provide a realistic solution to your need for litigation finance, and we’ll work quicker than any other litigation funder too.
Are you an insolvency practitioner with a good claim?
Get in touch with the team at Redress Solutions and we’ll review your case within two working days.
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