Litigation funding for corporate disputes

Damian Carter and Jessica Kraja provide an overview on how litigation funding can be used effectively for disputes involving companies and shareholders.

Third party litigation funding is a way to finance litigation with funds provided by a third party litigation funder. It is non-recourse financing — the funder only gets repaid, (and is paid a multiple of its investment amount), if the claim is successful.

“Enable” is a bespoke all-in-one litigation funding product developed by Weightmans in conjunction with a broker, funder, and insurer which takes the cost risks out of litigation for commercial claims requiring litigation funding and adverse costs cover.

So how can Enable help take the cost risk out of corporate disputes?

Shareholder disputes 

If you are a shareholder of a company and you have been treated unfairly, for example, if you have been excluded from management and participation in decision-making; if your shareholding is being diluted; or if you have been underpaid dividends, you may have an “unfair prejudice” claim against the other shareholders. We recognise that it can be difficult to find the funds personally to pay for legal costs to bring such a claim, whilst also being concerned about the possibility of paying the opponent’s costs if you lose. If the claim meets certain criteria, Enable can help you advance the claim.

Impact of shareholder disputes on a business

If you are embroiled in a shareholder dispute, it can take up a lot of time, attention, and costs to pursue. This can have an impact on the day to day running of the business and potentially the value of the company. Disgruntled minority shareholders can also have an impact on the ability to sell a company for market value, as all material claims will need to be disclosed as part of the due diligence process before a sale. Any minority shareholder claims may be brought against the majority shareholders personally, and the company’s own funds cannot be used by the majority to defend the claim on the basis that it’s a dispute between the shareholders. If the claim meets certain criteria, Enable can help you cover the costs of the dispute and de-risk the process.  

Claims against directors

When a director breaches their fiduciary duties, for example, diverting business opportunities for personal gain, the company would have a claim against that director. Again, if the claim meets the criteria, Enable may be available to pursue the claim. An advantage of this funding for a company is that it does not have the financial burden of funding the legal costs and is able to use its resources for its business.

Adverse costs

What is an adverse costs risk? When it comes to litigation, the usual rule is that the unsuccessful litigant pays the successful litigant’s costs, (subject to some exceptions). Therefore, when considering whether to pursue a claim, alongside the strengths of the case, you always need to consider what might happen if you are ordered to pay the opponent’s costs.

As well as litigation funding, an “After the Event” insurance policy can be obtained which will protect you if you have to pay the opponent’s legal costs and disbursements. The premium is only payable if the claim is successful.

Early assessment and funding

It is vital to seek advice as early as possible to assess the merits of a claim, as well as strategic advice as to how the claim should be advanced and the likely outcomes. As part of that initial assessment, it is important to consider how best to fund the case.