More insolvency cases likely

New Zealand could be set for an upsurge in legal cases against insolvent companies with several Australian litigation funders entering the market.

Litigation funders assume clients' legal costs in exchange for a cut of the settlement if the cases are successful. They often take on cases in the insolvency area seeking to recover money from liquidated companies.

Two Australian liquidation funders LCM and Quantum Litigation Funding have recently taken on New Zealand cases and another two IMF and Litigation Lending Services are understood to be about to enter the market.

In Australia, where litigation funding is more established, funders have backed cases against the likes of grain trader AWB and building group Multiplex.

Quantum Litigation Funding managing director Greg Tilse says his firm took on its first New Zealand case in January and is aiming for about 10 cases in New Zealand in its first year.

Quantum would focus on the insolvency market in New Zealand. "That's partially because it's a busy area and partially because litigation funding is most widely accepted in insolvency," he said.

Cases need to be of a reasonable size probably around $900,000-plus and Quantum must have a good chance of winning them, Mr Tilse said. "Litigation funders tend to talk about winning 70 to 80 per cent of cases," he said. In return Quantum would claim back money it spent on legal fees then take a percentage cut of from 20 per cent to late 30s of the settlement. Fees woul be higher if the case went on for longer and lower if the claim was bigger, Mr Tilse said.

In New Zealand, Quantum will use law firm Kensington Swan to help it decide which cases to take on. Kensington Swan partner and insolvency specialist Dan Hughes said the arrival of Australian litigation funders would lead to more claims going to court.

"In the past you've had only two ways of bringing a claim," he said. "The first is they fund it themselves and some of the insolvency practitioners do that. The second is to get the creditors to fund and that's a tough ask if creditors have already lost a significant amount of money. One of the positives of these guys getting involved is we'll be able to chase recalcitrant directors and/or claims that otherwise wouldn't have been pursued."

A director of insolvency firm McDonald Vague, Kevin Bromwich, said there was limited access to litigation funding in New Zealand and the arrival of the Australian firms was a positive development. "There are liquidations where there are no funds to pursue cases. You often end up asking creditors if they will fund it. They (litigation funders) take a fairly big cut out of the winnings but in many cases if they did not provide it you would have no access to do anything."

- © Fairfax NZ News