Reasons for Litigation Finance

There are many reasons why litigation finance may be a good option to finance your claim. To find out more about how litigation finance works and how it offers a low risk financial option when you are defending or bring a claim, click here. Below are some of the most common reasons individuals and companies use litigation finance.

Shareholder Disputes

Within a new company, an imbalance of power is common between shareholders. There is often a difference in the level of experience, investment and degree of day-to-day involvement between shareholders and this can lead to disputes.

It might be that a minority shareholder is regularly takes the role of a director and is expecting not only a salary to cover their personal expenses while devoting much of their time to the business, but also shareholder dividends once the company is profitable. Alternatively, it might be that a majority shareholder with little to do with the day-to-day running of the business has an expectation for capital growth of their shareholdings as well as an income.

No matter the reason, financial disputes will often arise between directors and shareholders and it can be very difficult to clarify the shareholders rights and the obligation of the directors. In situations like this, litigation finance can offer a lower financial risk way to settle disputes and make a claim.

Claims against directors

Directors of limited companies usually benefit from a limited liability status. However, in certain circumstances that protection can be removed. When directors are liable, they can become subject to personal claims against them. This usually occurs when there has been a breach of their duties or claims can follow the insolvency of a company.

In complex circumstances like this, it is incredibly important to seek legal advice, to protect yourself. The law surrounding personal claims against directors can be complex. However, when you seek proper advice, many claims of this nature can be defeated.

When directors fail to deal with such claims, the results can be devastating, with proceedings being issued and Court orders being made against you personally. If this happens, it could lead to a loss of your personal property and perhaps even bankruptcy. Litigation finance can offer a lower financial risk option to fund your claim. If you have a strong defence, a third-party funder may be willing to finance your defence, for more information on whether you might be eligible for litigation finance click here.

Directors fiduciary duties

Although theoretically the relationship between Directors and Shareholders is a simple one, in practice complications and confusion can arise. In the UK, Directors of any company are separate from the business owners, who are the Shareholders. The Directors have a duty to mange the company solely in the interest of the Shareholders.

Within this relationship, problems can arise when there is any confusion between a Directors’ understanding of their duties, the interests of the Shareholders and the need for unity and consensus between Directors to ensure the company is effectively managed.  The more successful a company becomes the more complicated that can be.

The duties of a Director have been clearly set out in a series of legal cases specifying the interests which Directors serve. These interests include the need for independence; the need to remain loyal to the original purpose of the company; the need to act objectively and the need to ensure good company management. These are duties are known as “fiduciary duties”. A directors’ fiduciary duties inspire trust and confidence in the relationship between Director and Shareholder, they’re vital as the Shareholders essentially entrusts their investment to the Directors.

When a Directors’ fiduciary duties are neglected, strict penalties can be enforced which the Director may be personally liable for.

However, a Director is not only bound by their fiduciary duties, there are other legal requirements which they are subject to. Directors’ have a duty to ensure regular financial accounts and other statutory documents are filed to ensure appropriate accounting records, meaning the Directors can regularly understand the Company’s financial position. They must also ensure confidence is maintained in the UK economy and that the risk of fraud is mitigated. The Companies Act 2006 lays out the fiduciary duties of a director as well as these other requirements.

The duties of a director can be complex and when claims are brought against directors the results can be personally devastating. Whether you are bringing a claim against a Director or you’re a Director needing to defend a claim against you, litigation finance can be a good option to cover your legal fees. With litigation financing a third-part funder will cover the costs of your claim in return for the share of the winnings from your case. Litigation financing is a lower risk option, as if your claim or defence is unsuccessful you will not be liable for any of the costs.

Claims after Insolvency

When a company is placed into Insolvency (either Administration or Liquidation) claims can be brought against directors (past or present). Claims can also be brought against the directors’ spouses and family members as well as associates or any third party. The claims can be for recovery of sums that may have been paid to them prior to the commencement of the Insolvency Proceedings.

Claims like this can be serious, they might lead to transaction being repayable by you to the company. Not only might innocent transactions need to be repaid, but there will also be interest and legal costs. Transactions may include payments made to creditors or salaries taken by directors and their family members.

Claims like this can be severe and might result in the loss of your possessions, your home and even bankruptcy. If you are a Director facing claims like this, litigation funding can be a good option for funding your defence. With litigation finance a third-party funder can cover the costs of defending such claims and help to avoid unwanted losses.