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Should Courts Encourage Litigation Funding?

By Ken Rosen |

The following was contributed by Ken Rosen Esq, Founder of Ken Rosen P.C. Ken is a frequent contributor to legal journals on current topics of interest to the bankruptcy and restructuring industry.

In many Chapter 11 cases, the debtor’s estate holds valuable litigation claims, which can be a key source of recovery. However, pursuing these claims can be daunting when the defendant has substantially greater financial resources. Well-funded defendants may use aggressive litigation tactics to exploit the estate’s limited means.

Unsecured creditors, often receiving only token recoveries, may be hesitant to approve further legal spending. Debtor’s counsel, wary of nonpayment if litigation fails, may also be reluctant to pursue claims. Contingency fee arrangements can reduce estate risk, but they shift risk to counsel—particularly when facing a resource-rich defendant.

To gain creditor support, more than the committee counsel’s confidence may be needed. Litigation funding can bridge the gap. It provides capital to pursue claims without draining estate resources, helping to fulfill Chapter 11’s core goals: preserving going concern value and maximizing creditor recovery, as recognized by the Supreme Court.

Litigation funding is especially valuable when the estate lacks liquidity. It enables the debtor to pursue meritorious claims against stronger opponents, discouraging defense strategies aimed at exhausting the plaintiff through expensive discovery and motion practice.

The Funder’s Evaluation Process:

  1. Legal Merits – Assessing the strength of claims based on facts, evidence, and precedent.
  2. Recovery Potential – Estimating damages or settlement value to ensure adequate return.
  3. Litigation Costs – Forecasting expenses to trial or resolution.
  4. Risk Analysis – Evaluating the defendant’s ability to pay, jurisdictional issues, and delays.
  5. Independent Review –Funders conduct rigorous due diligence before committing capital.

A funder’s involvement serves as a “second opinion” validating the case. Their willingness to invest can bolster confidence in the claim’s merits and justify some estate contribution. It can serve as a soft endorsement of the litigation’s potential value. When a party seeks authorization for litigation funding it should be viewed by the Bankruptcy Court as weighing in favor of approval.

Whether or not funding is obtained, the terms of any arrangement should be redacted/sealed and remain confidential—shared only with the Court and key constituent counsel. The rationale for proceeding without funding should likewise remain undisclosed. Keeping defense counsel in the dark preserves strategic advantage.

Conclusion:

Litigation funding can be a powerful tool for Chapter 11 estates, enabling pursuit of valuable claims, minimizing financial strain, and supporting reorganization efforts. This strategy aligns with Chapter 11’s purpose and can significantly enhance the likelihood of a successful outcome. Key constituents and the court should recognize that.

About the author

Ken Rosen

Ken Rosen

Commercial

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Commercial Regulatory Issues

AALF Chairman: UK Should Avoid Repeating “Australia’s Flirtation with Overbearing Regulation”

By Harry Moran |

With the UK funding industry awaiting the outcome of the Civil Justice Council’s review of third-party litigation funding, most of the commentary about what direction the government should take has come from those professionals practicing inside the UK. However, in an example of transnational solidarity between funding markets, the head of Australia’s industry association has spoken out to encourage the UK government to act to protect its legal funding sector.

In an opinion piece for The Law Society Gazette, John Walker, chairman of the Association of Litigation Funders of Australia (AALF), presents a strong argument that the UK government must avoid following Australia’s past mistake of overregulating the legal funding industry. With the prospect of the CJC’s review soon reaching its conclusion, Walker argues that the government’s “priority must be addressing the uncertainty created by the PACCAR decision”, rather than acceding to the demands of “the powerful, well-resourced and disingenuous minority perspective of the US Chamber of Commerce.”

Walker points to the recent history of legal funding in Australia, where the strength of these critics’ views led to the previous governments introducing strict regulations that created an environment where “access to justice for claimants was denied, corporate wrongdoers were protected, and claims started to dry up.” As Walker explains, the true lesson from Australia was the reversal of these regulations by the new government in 2022, which has seen funding rebound and drive a wave of class actions representing Australians seeking justice once more.

Taking aim at the opponents of the litigation funding industry, Walker highlighted the “myths pedalled” by groups like Civil Fair Justice as being “built on falsehoods that risk clouding reality and choking off access to justice.” Putting the often-repeated claim of funders supporting frivolous claims in the crosshairs, Walker notes “in reality, funders in the UK fund as few as 3% of the cases they're approached about.”

Commercial Legal Innovation

Qanlex Rebrands as Loopa Finance

By Harry Moran |

Litigation funding startups are a common occurrence, especially in recent years. However, the rebranding of an established funder is less common, yet worth keeping an eye on.

In a new blog post, the litigation funder formerly known as Qanlex announced that it is rebranding and will now operate under the name: Loopa Finance. The funder emphasised that it is still “the same team, the same values, and the same focus”, but with a new name that represents  the adoption of a “a clearer, more modern, and more memorable identity.”

The blog post goes on to provide a fuller explanation of the new name: “Loopa refers to our way of working: examining each opportunity with a magnifying glass and creating virtuous loops of funding, access to justice, and efficient conflict resolution.” The announcement also clarifies that the rebranding “does not imply any structural, corporate, or operational modifications.”

Loopa was founded as Qanlex in 2020, offering litigation finance services for cases in Latin America before expanding its funding solutions to commercial claims and arbitrations in continental Europe. As LFJ reported in January of this year, the funder revealed that it was refining its Latin America strategy using new technologies and focusing on specific sectors within individual jurisdictions in the region. Examples of this sector focus include energy cases in Ecuador, real estate development matters in Costa Rica, and oil and energy cases in Colombia. 

More information about Loopa Finance can be found on its website. 

Case Developments Commercial

Echo Law and LLS File Class Action Against Toyota Finance in Australia

By Harry Moran |

Class actions in Australia continue to be viewed as desirable opportunities for litigation funders, with the first half of 2025 already seeing a number of funded claims brought on behalf of consumers wronged by the state or large corporations. 

A joint media release from Echo Law and Litigation Lending Services (LLS) announced that they are pursuing a new class action against Toyota Finance in Australia, this time over the sale of “junk” add-on insurance to consumers. The claim, which has been brought before the Supreme Court of Victoria, alleges that Toyota Finance and insurer Aioi Nissay Dowa Insurance Company Australia (ADICA), engaged in “unjust, unfair, misleading and unconscionable” conduct that breached the Corporations ACT, ASIC Act, and National Consumer Credit Protection Act 2009.

The class action has been filed on behalf of any consumers who took out a car loan with Toyota Finance and were sold a Toyota branded add-on insurance policy between 1 January 2010 and 5 October 2021. The allegedly “junk” insurance policies covered by the class action include Toyota Payment Protection Insurance, Toyota Finance Gap Insurance, and Toyota Extended Warranty Insurance.

Alex Blennerhassett, Principal Lawyer at Echo Law, said that “this class action is about holding Toyota Finance and ADICA to account for knowingly selling junk insurance to everyday Australians, even though these policies offered no value.” In a separate post on LinkedIn, Emma Colantonio, Chief Investment Officer at LLS, said that the class action is “a strong example of litigation funding enabling access to justice and supporting consumers in holding major financial players to account.”

This class action is separate to the Flex Commissions claim which was filed by Echo Law against Toyota Finance in February 2024. That class focuses on allegations that car dealers secretly inflated the interest rate on consumers’ car loans, resulting in additional interest fees. The Supreme Court has ruled that these separate class actions can be managed together, and Ms Blennerhassett said that they expected “there to be a significant number of persons who are group members in both proceedings”. 

LLS is providing funding for both class actions brought against Toyota Finance. More information on both class actions can be found on Echo Law’s website.