Litigation Funding Security for Lenders

The lender can take a view on the funded case(s) but in order to truly protect their position(s) lenders require concrete, robust security arrangements to be put in place and for them to be given full detail as to how such arrangements will be operated in practice.

Charge or Assignment Over Proceeds

A Deed of Assignment over the claim proceeds is commonly used to secure litigation funding. The lender’s entitlement to any recovery from the claim is transferred to the lender and this forms the basis of their security rather than an unsecured promise.

Priority When Multiple Creditors Exist

Where insolvency practitioners or other creditors are involved, litigation funding security for lenders will typically rank on the basis of registration and the time at which registration took place. Therefore an appropriately registered charge over the proceeds of a claim will rank ahead of any subsequent unregistered charges and the claims of all other creditors of the insolvent’s estate.

Early Settlement and Discontinuance

Early Settlement and Discontinuance: Any settlement or discontinuance of the funded case must state terms that require repayment of any funds drawn and state the priority of any surplus to the claimant, before it is distributed to the lender. A waterfall clause is typical in the funding agreement and ensures the lender is repaid before any surplus is distributed to the claimant.

For Litigation Funding, see https://www.novo-modo.co.uk/litigation-funding.

Covenants During the Case

The lender should require the claimant to comply with a number of covenants during the course of the case. These should include restrictions on the claimant’s legal representation without the lender’s consent, the claimant’s obligation to inform the lender of any settlement offers, and the claimant’s obligation to notify the lender of any new proceedings which may affect the funded claim.

Verifying Documentation Before Drawdown

For litigation funding positions, this can be expressed in the form of a conditions-precedent checklist. Specialist advice on the structuring of such security (and its release) can be found here. This guide also explains how litigation finance is treated under English law which will enable lenders to assess the enforceability of any security prior to drawing down funds under such a financing agreement.

The security of litigation finance is based on the rights of the lender under a contract of security which is documented and in which there is a registered charge granted. Repayment of the lender will be triggered by certain contractual events.