Pérez-Llorca holds an event on the new approach to financing litigation in bankruptcy situations

The first speaker was James Blick, Director of The Judge. The Judge is one of the biggest brokers in litigation financing and has a solid base in the Anglo-Saxon world, where litigation funding is more common. Blick introduced the concept of litigation financing and gave a broad overview of the role of the broker and the added value for clients. Blick also briefly described the market for litigation funding funds (the age of the market, number of operators, etc.) and explained the main factors which are considered prior to granting the financing (the dispute amount, the amount of investment required, the solvency of the defendant, the probability of successful litigation, etc.)

Ignacio Delgado, from Therium Capital Management, one of the international funds that has decided to explore business opportunities in the Spanish market, was next to speak. Delgado explained the different approaches adopted by each of the funds and in particular the one adopted by Therium. Therium performs an in-house due diligence in order to assess the legal and financial soundness of the claim. However, after this stage, Therium adopts a non-interference policy with regard to the selection of lawyers in charge of the case and the strategic decisions made. Delgado explained that this policy was complemented by safeguard mechanisms for the fund such as the purchase of an insurance policy to be able to absorb the risk of the costs in the event that the lawsuit is lost (which mitigates the risk), and contractual arrangements for guaranteeing the investment and conflict resolution mechanisms. The objective is to align the interests of the fund and the client as much as possible.

Lastly, the attendees heard from Armando Betancor, an insolvency administrator and Partner of Alas Legal Advisors, who provided his experience of an insolvent party undergoing liquidation that contracts a fund. The objective of Betancor’s contribution was to identify the points that were considered when deciding to opt for litigation financing. Betancor explained that the the insolvent party’s dispute was recorded from the beginning in the inventory of the insolvency proceedings. At the liquidation phase, this dispute was included as an asset subject to settlement and the liquidation plan established a mechanism for selecting a litigation financing fund. Thus began a nine-month process during which the funds carried out the due diligence of the litigation and the terms of the contracts with these funds were negotiated. At the end of the process, the funds presented their financing offer. The offer with the best financial terms was chosen. Betancor’s assessment of the decision to finance the litigation is very positive.

Following the presentations, the discussion continued, addressing important issues such as how to deal with a potential conflict of interest between a client and a fund, the different policies adopted by different types of funds, and the potential for litigation funding not only in relation to litigation outside the bounds of the insolvency proceedings, but also in relation to actions that form part of the proceedings themselves.