Court Grants Funder Permission to Use Documents Produced for Examination
An important precedent was set recently, involving a decision in LCM Operations Pty Ltd in the matter of 316 Group Pty Ltd (in liquidation) 2021, and the use of documents produced in an examination. What exactly happened? MONDAQ details that a liquidator sold claims to a legal funder in August of 2019—selling for $10,000 and a 15% share of any recovery. After approval, the funder became an eligible applicant and filed to gain access to documents produced during investigations of the debt. Funders required these documents in order to adequately pursue the debt. One debtor, Rabah Enterprises, who owed more than $14 million, asserted that the Harman obligation precluded the funders from using the documents. The court was charged with examining whether the funder required leave to use the documents—and if so—whether such leave should be granted. Justice Steward determined that liquidators are not exempt from Harman. As such, they may not use documents produced for another purpose for their own collateral or ulterior motive. At the same time, the use of the documents, in this case, does not constitute collateral or ulterior purpose and may be used in the pursuit of assets in the liquidation. Funders being eligible applicants, in this case, were granted permission to use the documents in question for the purpose of securing assets. Ultimately, Rabah was ordered to pay costs, and the funders got the ruling they desired. This case sets a clear precedent for insolvency professionals and funders who could find themselves facing a Harman motion.