What is insolvency litigation funding?
Litigation funding is an arrangement where a third party finances the cost of legal action in return for an agreed share of any recovery. In an insolvency context, this lets a liquidator or judicial manager pursue claims, for example, to unwind transactions that unfairly stripped value from the company, without creditors funding the cost of the litigation.
The IRDA expressly empowers liquidators, with court approval or the consent of the committee of inspection, to enter funding agreements and assign the proceeds of certain insolvency claims to a funder. These typically include claims to reverse antecedent transactions, such as transactions at an undervalue and unfair preferences. In appropriate cases, a funder can also be granted priority for its funding.
What funding is not: it is not a way to pursue weak claims cheaply. Funders back claims on their merits, and the practitioner retains control of the proceedings. A poorly conceived claim will not attract funding, and should not.
Who is this relevant to?
Liquidators and judicial managers
holding claims worth pursuing but lacking the funds in the estate to do so.
Creditors
who want value-stripping transactions investigated and pursued, with the cost carried by a funder rather than the estate.
Lawyers and funders
structuring recovery actions in insolvency situations.
When does litigation funding make sense?
Funding is worth considering when there is a claim with real merit but insufficient funds in the estate to run it, and where pursuing the claim could meaningfully increase recoveries for creditors. It is most relevant to recovery actions that are personal to the insolvency practitioner or that arise from the company’s pre-insolvency conduct, which usually surface through a forensic investigation.
How a funded recovery action is structured?
1. Identify the claim
Through investigation, the practitioner identifies a claim with genuine prospects, often an antecedent transaction or a breach by those who ran the company.
2. Assess viability
The merits, likely recovery, and risk are assessed, the analysis a funder will also expect.
3. Arrange funding
A funding agreement is negotiated. Where required, the practitioner seeks court approval or the committee of inspection’s consent, and may seek priority for the funder.
4. Pursue the claim
The action is pursued, with the practitioner retaining control of the conduct of proceedings.
5. Distribute proceeds
Recoveries are applied according to the funding agreement and the statutory order, increasing the return to creditors.
Why DHA+ pac
Funded recovery is where investigation and enforcement meet. It rewards a practitioner who can spot a claim worth pursuing, present it credibly to a funder, and run it to the standard the courts expect. DHA+ pac has worked across recovery and investigation in Singapore since 1994. Our Licensed Insolvency Practitioners take a disciplined view of which claims merit funding, so the estate’s interests, and creditors’ interests, stay front and centre.
FAQ
No. Under a funding arrangement, the funder carries the cost and risk of the action in exchange for an agreed share of the proceeds. That is the central advantage: claims can be pursued without depleting the estate.
Funding most often supports recovery actions arising from the company’s pre-insolvency conduct, such as transactions at an undervalue and unfair preferences. The IRDA allows the proceeds of these to be assigned to a funder, with the necessary approvals.
No. The insolvency practitioner retains control of the conduct of the proceedings. Courts have treated this as an important safeguard when approving funding arrangements.
Yes. The IRDA codified the use of third-party funding in the insolvency context, and the courts have given further guidance on how such arrangements are assessed.
Not sure where to start?
If you are holding an insolvency claim worth pursuing but the estate cannot fund it, funding may unlock a recovery.
Contact us for a confidential review.