Litigation Funding in Insolvency

Litigation funding (also referred to as litigation finance) is a crucial tool in the restructuring and insolvency context to assist insolvent, distressed or cash-poor claimants to maximise returns from litigation assets. It allows stakeholders to pursue valuable claims that otherwise may have to be abandoned or settled, thus increasing recoveries for creditors. The options for litigation funding are increasingly relevant to lawyers and insolvency practitioners IPs in complex international cases. For example, it is possible for IPs to enter portfolio agreements under which multiple claims can be funded across jurisdictions. Because the cases in the portfolio are “cross-collateralised” (i.e. the funder can take its full entitlement from any case that wins), this arrangement enables funding for both claims and defences, and for cases where the economics would not support funding on a stand-alone basis. In this article, we examine the state of the law regarding litigation funding in insolvency in key litigation hubs around the world.


As a general matter, litigation funding has been permissible in England since the 1960s following advice from the Law Commission that champerty and maintenance were effectively obsolete as crimes and torts; the rules were then subsequently abolished as crimes and torts by ss.13 and 14 of the Criminal Law Act 1967. However, the doctrines of maintenance and champerty continue to exist as rules of public policy, and funding agreements
which are contrary to these rules (in their modern form) will be unenforceable.

Modern authorities give some guidance as to the factors that the court will take into account when assessing the validity of any funding agreement. This includes the extent to which the financier controls the litigation. Examples of excessive control might include influencing strategy, seeking to interfere with the clientlawyer relationship; or controlling or meddling in settlement negotiations. A funding agreement has a greater chance of being struck down by the courts as offending rules against maintenance and champerty if the legal finance provider attempts to exercise control over the litigation or stands to recover disproportionate sums.

The Association of Litigation Funders (the ALF) was formed in the wake of Lord Justice Jackson’s positive endorsement of litigation finance in his Review of Civil Litigation Costs. In the 2009 report he espoused legal finance as beneficial in that it promoted access to justice. Members of the ALF agree to comply with a Code of Conduct. Under this Code, funders are prevented from taking control of the litigation or settlement negotiations and from causing lawyers to act in breach of their professional duties. It is generally the practice in the UK to keep the roles of financiers, claimants and their lawyers strictly discrete from each other.

In insolvency matters, the Small Business, Enterprise and Employment Act 2015 provides an exception to the usual prohibition on the sale of claims and permits insolvency practitioners to sell officeholder claims (TUV, preference, wrongful trading, etc). Litigation funders can either buy the claims from the Insolvency Practitioner outright, or often for some upfront payment plus a share of the proceeds. The purchase of claims can offer benefits both to the funder, since it allows the funder to control them, and to IPs, since the cash obtained can be used to investigate other potential claims.


Maintenance and champerty have not been abolished as offences under Cayman law, and so litigation funding agreements outside the insolvency context have been uncommon – although there are indications that the position is changing (for example, the important judgment in A Funder v A Company). Cayman courts have endorsed the modern English approach to the doctrines, which holds that insofar as the doctrines persist, they are “primarily concerned with the protection of the integrity of the litigation process” (as explained in In the Matter of ICP Strategic Credit Income Fund Limited [2014] (1) CILR 314).

The use of litigation funding by insolvency practitioners is well-established in Cayman. This is because the liquidator’s power to sell the property of the company extends to assigning a share in any proceeds of the company’s causes of action.

However, liquidators require the sanction of the court to commence any legal proceedings in the
name of the company. In practice, this requires some consideration of how litigation will be financed. In deciding whether to sanction the liquidator in the exercise of their powers, the court will consider whether the transaction is in the commercial best interests of the company, according deference to the liquidator’s judgment unless the evidence indicates substantial reason not to do so. A liquidator may not grant the funder the power to control the litigation in question – in ICP Strategic it was said that:

“… where this court is asked to sanction a litigation
funding agreement, its terms will be carefully
scrutinized to ensure that it does not directly confer
upon the funder any right to interfere in the conduct of
the litigation or indirectly put the funder in a position
in which it will be able, as a practical matter, to exert
undue influence or control over the litigation.”

The statutory power to assign the proceeds of a cause of action does not extend, however, to claims which vest personally in the liquidator.


Litigation funding is used in the BVI, although there has been remarkably little case law on the circumstances in which it will be permissible. There are no reported judgments in which the legality of litigation funding has been directly addressed, although it is possible to find judgments in which the use of funding was referred to by the court (without it being necessary for the court to rule on issues of legality). In the insolvency context, there are anecdotal suggestions that the court is willing to countenance funding (although the court files are often sealed in such cases, so that the judgments are not publicly available).

Against this background, the recent judgment of Ieremeieva v Estera Corporate Services (BVI) Ltd has provided some welcome guidance on the court’s attitude to the question of champerty. Wallbank J recognised the possibility that commercial litigation funding might provide access to justice, whilst also noting that the doctrine of champerty would serve to curtail agreements that might affect the integrity of the curial process, stating:“The Court is concerned to uphold the very long-standing public policy behind the disapproval of champerty, namely that third parties (typically solicitors who might be seeking to create work for themselves) should not be permitted to encourage lawsuits. There is a difference between that mischief, and the entirely laudable practice of encouraging access to justice for those with good claims who would otherwise be shut-out from the court system. Naturally, a third-party funder cannot be expected to provide funding upon a gratuitous basis. The issue for the court is whether a funding agreement has a tendency to corrupt public justice.”

Mr Justice Wallbank identified that the indicia of champerty would include excessive control by the funder, or an excessive return to the funder. It should also be noted that the existence of an external funder will be relevant to the decision whether to make an order for security for costs against a claimant. The BVI CPR, 24.3(a), identify that one of the circumstances in which security may be granted is where “some person other than the claimant has contributed or agreed to contribute to the claimant’s costs in return for a share of any money or property which the claimant may recover”.

Hong Kong

Maintenance and champerty are still torts and crimes under Hong Kong law. Nevertheless, an important exception to the operation of the doctrines is the use of litigation funding in the context of insolvency proceedings.

Liquidators in Hong Kong have a statutory power to sell ‘the real and personal property and things in action of the company’. This has been construed by the courts as conferring on a liquidator the power to assign a company’s causes of action to a funder– but only those causes of action which are vested in the company rather than
the liquidator personally. The power is exercised subject to the control of the court, and so liquidators may apply to the court for directions as to the lawfulness of a proposed sale (although this is not obligatory).

Separately to this, litigation funding is now permitted in Hong Kong in the context of arbitration and related proceedings. In this context, the Secretary for Justice has issued a Code of Practice for Third-Party Funding of Arbitration, which specifies the standards expected of funders in Hong Kong. It includes requirements that funders maintain access to certain levels of capital, provisions concerning the management of conflicts of interest, and identifies matters which must be addressed in the funding agreement (including the extent of liability for adverse costs, and the grounds upon which the agreement may be terminated).



There have been substantial changes in recent years to the law governing litigation funding agreements in Singapore. In 2017, the Civil Law Act was amended to abolish the torts of maintenance and champerty, and also to permit the use of litigation funding in international arbitrations, provided that the funder meets certain qualifying conditions. This is to be extended to include domestic arbitration, certain proceedings in the Singapore International Commercial Court and mediations connected with these proceedings.

In the context of insolvency, the Insolvency, Restructuring and Dissolution Act 2018 (“IRDA”) (which consolidated Singapore’s various insolvency laws) has expanded and clarified the circumstances in which an insolvency practitioner may use litigation funding. Prior to the IRDA, the position concerning the use of litigation funding by insolvency practitioners had been somewhat unclear, but successive courts had been expanding the circumstances in which it could be used.

In Re Vanguard Energy Pte Ltd [2015] 4 SLR 597, the High Court held, for the first time, that the insolvency legislation (as it then stood) permitted the sale of the fruits of a cause of action that belonged to a company. In obiter remarks, Chua Lee Ming JC gave considerable support to the use of funding, expressing the view that it was “undeniable that litigation funding has an especially useful role to play in insolvency situations”. Subsequently, in Re Fan Kow Hin [2018] SGHC 257, the High Court held that a trustee in bankruptcy was able to assign the benefits of claims in respect of transactions at an undervalue and unfair preferences. For this purpose, the fruits of the litigation were property of the estate – such that they could properly be assigned by a trustee in bankruptcy – and the High Court held that such an assignment would not be contrary to public policy, because it facilitated access to justice.

The IRDA has now given statutory support to the use of litigation funding by liquidators or judicial managers in respect of statutory claims. Specifically, s 144(1)(g) provides that the proceeds of various forms of action – may be assigned in accordance with the regulations.

Channel Islands

Until the landmark Jersey case of Re Valetta Trust (2012) the legality of legal finance agreements in the Channel Islands had not been considered by the Channel Islands courts. In that case the court established that there was no material difference between the law of Jersey and English law as to maintenance and champerty, recognising the ‘sea change’ in opinion elsewhere as to the permissibility of legal finance. The court held that it would not be an abuse for litigation to proceed on the basis of a litigation finance agreement citing the positive English and Australian case law history and Lord Justice Jackson’s favourable report on the industry in his Review of Civil Litigation Costs: Final Report (2009) as rationale. The subsequent decision in Barclays Wealth Trustees & Anor v Equity Trust (2013) provided further clarification. The Court reviewed the terms of the funding agreement and, following the precedent in Re Valetta Trust, concluded that there was nothing in the agreement that could adversely affect the purity of justice.

The position in Guernsey is clear for insolvency cases but not quite as clear otherwise. The Guernsey Royal Court approved a litigation funding agreement in the case of In re Providence Investment Funds PCC Ltd (2017), and gave as its basis the statutory right of a liquidator to sell the assets of the company in liquidation, rights in respect of litigation being such an asset. As a result of the case, liquidators and administrators can have confidence to proceed to assign claims or enter into funding agreements in Guernsey. Commentators suggest that the Guernsey courts would likely follow Re Valetta Trust in non-insolvency matters.

In order to sanction a funding agreement, courts in the Channel
Islands will want to know that there is not excessive control and that the funder has sufficient financial wherewithal. Being a member of the English ALF and meeting the requirements of that association is likely to be helpful in this regard.


In comparison with other common law jurisdictions, there is a longer history in India of jurisprudence on the concept of litigation financing. Judicial precedent has held since 1876 that the common law doctrines of champerty and maintenance do not apply to India and that funding agreements are generally enforceable unless the object of the contract is contrary to public policy.

In 2015 the Supreme Court in Bar Council of India v AK Balaji, clarified the legal permissibility of third-party funding in litigation and observed that “There appears to be no restriction on third parties (non-lawyers) funding the litigation and getting repaid after the outcome of the litigation.” There is no legislation that expressly regulates funding in the region; however the Civil Procedure Code of certain Indian states expressly refers to “third parties financing litigation,” and case law has generally been supportive of the industry. Additionally, various High Courts have both expressly recognised litigation financing and made provision for security for costs in such cases which all indicates a prevalent acceptance of the industry.

In spite of this, caution needs to be exercised when looking at funding in India as there remains a degreeof uncertainty around its use. Additionally, a funder not based in India must structure the funding in compliance with India’s foreign capital controls. This adds an administrative burden and tax consideration to any arrangement.

The recent implementation of the Insolvency and Bankruptcy Code and subsequent overhaul of the Companies Act has resulted in a rise in the number of insolvency cases resulting from creditors taking distressed companies to bankruptcy courts. The code has simplified the process for seeking redress and updated the previously outmoded complex corporate insolvency laws in India. It is therefore expected that the frequency of insolvency litigation will increase.



Since the global financial crisis there have been a number of complex insolvencies with a significant Middle East nexus. The development of the financial free zone, the Dubai International Financial Centre (DIFC), has encouraged new business and foreign investment in the region, some of which inevitably leads to insolvency situations. The DIFC is a common law, English language jurisdiction completely separated from the local civil law courts and offers rules and regulations that are aligned with international best practices.

Funding is permitted in the DIFC courts and 2017 saw the release of Practice Direction No.2 of 2017 on Third Party Funding in the DIFC Courts. Under the Practice Direction parties must disclose the fact that they are funded and the identity of the funder but are not required to disclose the terms of the funding agreement.

There are no limits in the DIFC Practice Direction on the fees and
interest that third-party financiers can charge. However, it is a common law regime modelled on English law, and so the doctrines of maintenance and champerty exist as a rule of public policy. Although a legal finance agreement does not per se amount to
either maintenance or champerty, an agreement could be found contrary to public policy if there is a level of disproportionate control or the recovery of excessive profit to the detriment of potential claimants.

The position in the Dubai local courts is less clear. However, there are no laws that prohibit third party funding and no indication from reported cases that it is discouraged (although funding appears to be uncommon and precedent is scarce). Commentators agree that funding ought to be consistent with Shari’a law principles of benefitting public interest and allowing access to justice, but care would need to be taken in structuring and drafting the funding terms and agreement.

About the Authors

Robin Ganguly is Counsel at Burford with responsibility for assessing and underwriting legal risk, focusing on contentious insolvencies.

Burford is a founding member of the Association of Litigation Funders and was instrumental in the launching of a voluntary Code of Conduct for third party funders operating in England and Wales.

Stefanie Wilkins is a barrister at South Square. She will be submitting a DPhil thesis at the University of Oxford on the subject of third-party litigation funding.

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