De-risking the pursuit of insolvency litigation claims

IPA Insolvency Practitioner newsletter, September 2024

Article by Gwilym Jones, Co-Founder, Henderson & Jones

Litigation assets within insolvent estates can be difficult to realise.  Litigation is expensive and risky; valuable claims might therefore be compromised at an early stage on disadvantageous terms or abandoned entirely.

Often cost is the largest hurdle to pursuing litigation.  Litigation is expensive and creditors may not want insolvency practitioners to risk the limited assets within the estate to pursue claims.  Further, litigation comes with the risk of being ordered to pay defendants’ legal costs if claims are unsuccessful. 

However, there are now a number of litigation investment companies which specialise in purchasing and then pursuing litigation claims. Such companies will assume the costs of progressing the litigation and, as the assignor, will become the named claimant and therefore assume any adverse costs liability.  Assignment of claims therefore provide a ‘risk-free’ solution that enables claims to be pursued without risk to insolvency practitioners or the insolvent estate. 

The assignment of claims can provide insolvency practitioners with the best of both worlds. If the claims succeed, then the insolvent estate benefits from that success without risking its own funds in pursuit of claims. But if the claims fail, then it is the third parties who lose the sums invested and will likely also have to meet (potentially significant) adverse costs.

Further, the Courts have held that insolvency practitioners have a positive duty to consider the assignment of claims that they do not intend to (or cannot) pursue (LF2 v Supperstone & anor [2018] EWHC 1776 (Ch)).  Third party investors will often assess claims for free and help to ‘test the market’. If no one is interested in purchasing a claim then the insolvency practitioners can document those decisions to protect against any potential criticism for failing to pursue a claim.

In summary, there are options available to insolvency practitioners to consider when assessing potential litigation claims – and insolvency practitioners need to be careful to ensure they are properly discharging their duties to consider the best course of action. There is valuable assistance available that has changed the insolvency litigation landscape, which can and will result in insolvent companies achieving higher value and lower risk returns from litigation assets.

Henderson & Jones is a litigation investment company that purchases and funds litigation and arbitration claims from insolvent companies and individuals.  Henderson & Jones can offer advice and assistance with any queries regarding the assignment of litigation claims. 

For any further information, please visit our website or contact Gwilym Jones – gwilym@hendersonandjones.com   

Please note that guest content does not necessarily represent the views of the IPA.