The 'big five' insolvency issues for 2013

Download: 2013 PUB BC The 'big five' insolvency issues for 2013.pdf

Several issues of far-reaching significance in the world of restructuring and insolvency will be decided by the courts, and by Parliament, this year.

Some have yet to surface but others are already in the pipeline.

We look at what we consider to be the "top five".

Litigation funding

The Supreme Court will be asked to determine the appropriate level of disclosure in cases involving litigation funders. Last year, the Court of Appeal held that key details of litigation funding agreements (LFAs) should be released to the other party, as well as to the court.1 Chapman Tripp's earlier commentary on the Court's decision is available here.

Until recently, litigation funding was prohibited as it affronted the antiquated torts of maintenance (assisting a party to sue) and champerty (taking part of the proceeds of the litigation). However, more recently the Commonwealth courts have accepted that access to justice for the public2 should trump such concerns: pennilessness should not disqualify litigants from bringing justified claims.

At this fledgling stage in New Zealand, there is debate around how LFAs should operate and how should they be controlled.

An unregulated litigation funding market could leave litigants exposed to an impecunious or ruthless funder. There is also a risk that LFAs could assist parties to bring claims without merit in the hope of bullying a defendant into settlement. Many funders are based offshore and are therefore outside the reach of the New Zealand courts. On the other hand, over-regulation may impede potential litigants' access to justice.

The Court of Appeal hesitated to intrude on the funded party's LFA, but nevertheless recognised that some scrutiny was necessary to safeguard the process. The question was the proper extent to which the other (non-funded) party should be informed of the terms of the LFA.

Because of the strategic advantage that such information could provide, the Court ultimately required disclosure of only a few key details, namely:

the identity and location of the litigation funder the funder's financial viability the law governing the LFA and which courts have jurisdiction, and the terms on which the funding can be withdrawn and the consequences of a withdrawal of funding. The Supreme Court has granted leave for the funded party to appeal.

New Australian legislation3 effectively exempts litigation funding from all forms of regulation, save for a requirement adequately to manage potential conflicts of interest.

Will our Supreme Court be persuaded by the Australian approach, or will it be more cautious and maintain a level of supervision?

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