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Commercial

Recent UK Decision May Impact Future Insolvencies

Are insolvency claims about to become more expensive and time-consuming to pursue? Some have suggested yes, after a ruling in Manolete Partners Plc v Hayward and Barrett Holdings Ltd 2021. It’s said that the recent ruling impacts those who assign insolvency claims, as well as insolvency practitioners themselves, by increasing the cost of claims, and may require two separate sets of proceedings regarding the same set of facts. Why? National Law Review details that there are significant differences between filing a hybrid claim under the Insolvency Application Rules and filing under Part 7 of the Civil Procedure Rules. One main difference is the court fee—which is much smaller under the standard rules. Another is that a hybrid claim may have to be adjudicated as two separate claims. Claims like breach of contract or breach of duty cannot be addressed with an Insolvency Application. So claims under the Insolvency Act must now be tried separately from cases under the Civil Procedure Rules. To sum up, an officeholder may file transaction avoidance proceedings under the Rules (Insolvency Application). But claims for breach of duty or other claims that don’t come under the purview of the Rules must then be filed using Part 7 of the Civil Procedure Rules. Assignees are not creditors, official receivers, liquidators, or contributors. As such, malfeasance claims are not something an assignee can pursue. If the incorrect procedure is used, courts can require applicants to pay the higher Part 7 court fee if they wish. But there is no requirement for courts to allow this, making it particularly unlikely if they suspect abuse of process. A safer option is to be certain where and how claims should be filed. While this case will make insolvency proceedings more difficult, costly, and time-consuming—it does not keep meritorious claims from being pursued.
Commercial

Jurisdictions Expanding Funding Access for Offshore Asset Recovery

As parts of the world seek out post-COVID normalcy, a predicted spike of legal claims is en route. Insolvencies are increasing, as are claims of fraud, breach of contract, and breach of fiduciary duty. With that in mind, a group of practitioners who deal in fraud, insolvency, and enforcement held the Asset Recovery Americas Conference—focusing on enforcement law in Latin America and the United States. Validity Finance details that several prominent jurisdictions are adopting policies more welcome to litigation funding in insolvency matters. Adding needed clarity to the use of third-party legal funding is a boon to clients and lawyers—but also to investors. The newly passed Private Funding of Legal Services Act, adopted last month in the Cayman Islands, makes several important changes in the law. First, champerty and maintenance laws were stricken. Contingency fee agreements and conditional fee arrangements are now permitted—with caps on how much lawyers can be paid above their normal fees. Finally, it allows for the use of third-party litigation funding agreements, with specific stipulations on how payments are calculated. The British Virgin Islands have accepted litigation funding since the late 1990s when they abolished champerty laws. The practice of third-party funding is seen as a vital part of ensuring access to justice. Meanwhile, Brazil allows funding, but has no laws in place governing the practice. Funding has yet to become mainstream there—which means that new laws may be on the horizon as legal and financial practitioners embrace the practice. The potential for growth is enormous, though a clearer legal framework is needed. Similarly, Argentina has no legislation directly impacting litigation funding—so restrictions are minimal. Legal fees are high in Argentina, and scandals are common. As such, there’s a widely held belief that litigation funding should be mainstreamed to provide citizens better access to the legal system.
Commercial

Litigation Funding in Asia—What’s the Holdup?

Litigation Finance has long been increasing in popularity and sophistication in places like Australia, the UK, the US, and Germany among others. Yet despite this run-up, much of Asia seems slow to adopt the practice. Law.Asia suggests that now that Hong Kong and Singapore have opened their doors to the practice of third-party legal funding, other Asian jurisdictions may follow suit. Both Singapore and Hong Kong allow litigation funding for international arbitration—including mediation and enforcement. Hong Kong extends this to liquidators, affirming that liquidators do not need court approval in order to enter a funding agreement. Harbour Litigation Funding founder Susan Dunn explains that banks, big business, sovereign wealth funds, and government entities are all making use of third-party funding—believing it to be a strong solution for runaway legal budgets. Dunn details that the straightforward nature of a funding agreement is highly attractive to businesses in particular. For investors, litigation funding is a way to diversify investment portfolios with assets uncorrelated to larger markets. Of course, this kind of investment requires experienced funders with a solid track record of picking winners. Portfolio funding can help diversify the risk involved. The funding industry has been spurred toward major growth during the COVID pandemic. Financial turmoil led to business closures and cash shortages across most major markets. And alongside this development, many new players have entered the legal finance space. Robin Darton, insolvency and restructuring partner at Tanner De Witt, explains that COVID has also brought with it a glut of insolvencies, breach of contract, fraud, and breach of duty claims. This presents more opportunities for funders and investors. Litigation funding in Asia presents an array of opportunities—time will tell how Asian jurisdictions will respond.
Commercial

The Cayman Islands Refines Litigation Funding Regulation

Last month, the Private Funding of Legal Service Act 2020 (AKA the Act) became law. The Act brings codification to the rules governing the practice of third-party litigation funding—which had been addressed on a case-by-case basis previously. Like many jurisdictions, champerty and maintenance laws had to be abolished before litigation funding could be supported by the law. This was a key element of the Act. Mourant details that the Cayman Islands recognizes three types of litigation funding agreements:
  • Conditional Fee Agreements—where clients pay slightly more than standard legal fees if the case wins, and nothing if the case doesn’t.
  • Contingency Fee Agreements—where lawyers receive a set percentage of any award given, but clients pay nothing if the case is lost.
  • Third-Party Funding Agreements—where funders and clients agree on terms by which funders will cover case costs in exchange for payment after the case wins. Funding agreements are generally non-recourse, so clients pay nothing if the case is not successful.
Other vital aspects of the Act include allowing contingency fee agreements except in the case of criminal proceedings, or any case under the purview of the Children Act. Conditional fee arrangements are also permitted, with set limits imposed on how much attorneys can add to normal legal fees. Total amounts paid to lawyers may not exceed 33% of the total judgment or award. If lawyers want to enter a fee agreement with different terms, that may be possible with court approval. With regard to third-party funding agreements, the Act requires that funding agreements must be in writing, and comply with existing law. The Act leaves room for further regulation to be imposed later, as needed. Such rules could include disclosure requirements or the acceptance and regulation of new types of funding agreements. Overall, the Cayman Islands has created a welcome environment for funders and investors.
Announcements Commercial

Liti Capital launches tokenised private equity for litigation finance

Liti Capital SA, a Swiss Litigation Finance company, is launching into the world of crypto tokenisation with the goal of providing retail investors with investment opportunities previously only available to the top 1 per cent of investors.David Kay, CIO, successfully enforced what was at the time the largest international arbitration award in history, bringing in more than one billion US dollars of cash and securities. Liti Capital has already raised USD12 million in cash and litigation assets from private investors, owns a share of three cases valued at over USD200 million, and is ready to open up to a wider market. “We wanted to find a way to get everyone involved,” says Jonas Rey, Co-Founder and Managing Director of Liti Capital, “but how the financial markets are structured all but prevents that. The blockchain finally gave us the answer we were looking for.” Liti Capital uses the LITI token to represent a share in the company under Swiss law. While the LITI token gives access to voting rights and to dividend payment upon completion of a KYC process, it is not on any exchanges by design. The Company made a wrapped LITI (wLITI) for trading on Uniswap and soon other DEXes. Long-term goals include helping to protect the crypto community, prosecute scammers, and return the lost funds to the token holders with the hopes of preventing these activities in the future and ensuring a safe environment for investment and innovation. Liti Capital will spend between 5 per cent and 10 per cent of its investment capital investigating and funding litigation against these scam coins and rug pulls.
Commercial

Arkansas Teacher Retirement Fund Pursues Litigation Funding

Investments made by Arkansas’s Teacher Retirement Systems increased by a staggering $783 million. This ranks the fund in the top 5% of public pension funds in America. This comes after last year’s investments fell to only $15.1 billion as of the beginning of COVID shutdowns. Northwest Arkansas Democrat-Gazette details that trustees were asked to consider a proposed investment of $30 million into a fund focusing on third-party litigation funding. One trustee, state education commissioner Johnny Key, suggested that such an investment would be illegal according to a 2015 law regulating consumer legal lending. The committee will likely revisit the investment after due diligence is conducted. Trustees did authorize investments of up to $50 million in three different funds in a variety of industries—including real estate funding, renovation and redevelopment of commercial property, and utilities like power and telecommunications. Changes in investment policy have been voted on—albeit without the approval of the full board. New investments may require increased input from investment consultants. It’s suggested that this change might make it more difficult for the fund to invest in new areas—such as third-party legal funding. There is concern that a speedy, possibly reactionary change to an existing policy will not produce the desired result.
Commercial

Fishing Magnate Magnus Roth Settles Tugushev Fraud Claim

When Alexander Tugushev went to London in 2018, he expected to sue Magnus Roth and his former business partners for a cut of Russian fishing group, Norebo. The claim revolved around a one-third share based on informal verbal agreements made long before the founding of Norebo. Business Matters explains that counsel recently argued that Tugushev gave up his claim in the fishing industry when he accepted a position as Deputy Chair of Russian Fisheries Committee in 2003. Four years later, his career in public service ended in disgrace as he was sentenced to a six-year prison term for fraud and accepting bribes. Currently, Tugushev is facing multiple legal battles including investigations into stolen documents and a complex claim in London. Tugushev’s claim is being financed by unnamed litigation funders. Curiously, funding entity 17Arm appears to have been established solely to fund Tugushev’s claim. Roth and his partner, Vitaly Orlov, denied ever offering a piece of their business to Tughhev. Indeed, Tugushev was in prison when the company was formed. The settlement details have not been released. As the original claim was nearly GBP 350 million, it’s hard to imagine that Tugeshev and his funders won’t enjoy a nice payday all the same.
Consumer

Maxima and DAS UK Form Partnership for Clinical Negligence and Personal Injury Scheme

Optimise is a new scheme covering clinical negligence and personal injury, specifically aimed at small law firms. The partnership comes amid motor legal reforms and offers a full dedicated authority scheme for firms and sole practitioners who take on clinical negligence or personal injury cases. DAS LEI details that the partnership will offer firms fixed competitive rates, an online portal to simplify processing and case submission, and a dedicated relationship manager. There is expected to be a range of clinical negligence specialist areas like specific types of product liability or medical negligence—such as dental negligence. DAS UK is part of the world’s largest group of reinsurers. John Durbin, Sales and Business Development Manager, explains that it feels like the right time to help out smaller law firms that specialize in personal injury and clinical negligence.
Consumer

Percent Announces Partnership with Mustang Litigation Funding

Alternative Investment specialist Percent recently announced a strategic partnership with Mustang Litigation Funding. Mustang, founded in 2018, focuses on portfolio litigation funding and personal injury case funding. This includes product liability, auto accidents, and premises liability. The partnership is expected to expand investment options and grow the companies' network of partners. Percent explains that litigation finance is now a well-established alternative asset class that’s gaining global acceptance. Non-recourse funding is provided to pursue meritorious legal matters, with remuneration to the funder coming out of any settlement or award in the case—often calculated based on how long the case takes to be resolved. Jimmy Beltz, Co-Founder and Managing Partner of Mustang Litigation Funding, stated that this partnership will be a boon to investors who can now benefit from this uncorrelated asset class. Alex Pirro, VP of Capital Markets at Percent, details that Mustang’s impressive relationships with partners and firms speak well of the funder's ability to source and manage cases.