Litigation funding in Insolvency law and for insolvency adminstrators
For insolvency administrators especially, litigation funding is an important instrument for processing a case. In cases where the insolvent company’s estate is small, this funding is often the only possibility for asserting claims on behalf of the estate in court.
Frequently, an insolvency administrator’s application for legal aid to be granted for court proceedings fails because one creditor (or more) of the insolvent debtor has the capacity to fund the costs of a legal claim. Typically, however, these creditors do not want to “throw good money after bad.” Institutional creditors such as tax and revenue authorities are often prevented by internal administrative guidelines from advancing the costs of a lawsuit.
Litigation funding offers a silver bullet for these problems, because it enables the costs of legal proceedings to be borne without touching the insolvent company’s remaining assets while paving the way to the optimal satisfaction of creditors’ claims.
Conceivable cases in insolvency law could include the assertion of:
A building contractor is facing the economic death of his professional undertaking. Prior to filing for insolvency, he transfers a remaining plot of real estate to his wife. The insolvency administrator contests the sale and purchase agreement for putting the creditors at a disadvantage; he demands from the wife that she return the plot of real estate to the insolvency estate. The creditors are not willing to assume the costs of court proceedings. By obtaining litigation funding, the insolvency administrator is able to file a complaint without encumbering the insolvency estate.
Before filing for insolvency, the insolvency debtor A. supplied a textile machine to U. enterprise. The parties had agreed on retention of title until payment of the purchase price was made. No payment was made, and U. enterprise also became insolvent. The insolvency administrator of A. now asserts a claim to separate satisfaction and demands that the machine be returned. The insolvency administrator of U. refuses to return the machine and alleges that U. is its owner. None of the insolvency creditors is willing to advance the costs of the proceedings. ROLAND ProzessFinanz assumes the financial risk associated with bringing a complaint and thus provides the opportunity to assert the claim to separate satisfaction before a court.
U. enterprise supplies vehicles to A. enterprise. The latter is over-indebted at that point in time; the managing director G. does not, however, file for insolvency. The purchase price is not paid, and retention of title had not been agreed. After insolvency proceedings have been opened, the insolvency administrator of A. announces the insufficiency of the assets. Since the vehicles have already been divested, U., with the help of ROLAND ProzessFinanz, asserts a claim for compensation of damages against G.
The limited liability company I-GmbH, a subsidiary of B. enterprise, was supplied with electricity by U. enterprise. Since I-GmbH was in arrears to a significant degree with its payments for electricity that had been supplied previously, B. issued a letter of comfort in which it undertook to provide the financial means to I-GmbH so that the latter would be in a position to pay the receivables due U.
U. ceased supplying electricity to I-GmbH, which made payment on part of its outstanding debt. After insolvency proceedings had been opened regarding the assets of I-GmbH and after contestation of the payments made, U. payed an amount of EUR 1 million to the insolvency administrator of I-GmbH. U. now asserts a claim against B. for failure to comply with the letter of comfort it had issued.
The forwarding agent S. has become insolvent because of significant bad debt losses. Although U. enterprise owes S. EUR 300,000 under contracts as to transportation, it does not make payment because of alleged counterclaims; the insolvency estate cannot afford to file a complaint against U. for the outstanding amount. ROLAND ProzessFinanz provides the funding for the complaint proceedings without the insolvency estate having to bear the financial risk.