Law Times

Page 10 July 24, 2017 • law Times www.lawtimesnews.com Funding empowers creditors in bankruptcy claims BY JUDY VAN RHIJN For Law Times L itigation in progress and claims arising out of in- solvency can represent an important source of funds in an insolvent estate, but there may not be the funds or the confidence to proceed, especially in view of the risk of adverse costs. With the availability of third-party funding, monitors and creditors can now feel em- boldened to pursue claims that previously would have been al- lowed to lapse. "We have never been as ag- gressive as the U.S. in pursuing claims that arise in insolvency situations," says Aubrey Kauff- man of Fasken Martineau Du- Moulin LLP in Toronto. "I think that now, with this funding, trustees and creditors will be more aggressive in pur- suing litigation because there is less risk. Limited resources in the estates will not stop them throwing the dice on litigation." Kauffman says that, histori- cally in financing litigation in insolvency cases, other tools have been used, including the sale of the assets of the estate, debt financing, major credi- tor funding or contingency ar- rangements where the lawyer takes the risk, coupled with liti- gation trusts. "Litigation funding is a rela- tively new product in Canada. It's of great interest to the insol- vency bar," he says. "I'm not aware of any pure third-party litigation agreement in a Canadian insolvency case yet, but I believe it is imminent." Tania Sulan, chief invest- ment officer of litigation funder Bentham Canada, confirms that assessment of the situation. "There have been one or two examples of third parties fund- ing litigation of insolvent enti- ties but not professional litiga- tion funders like Bentham, as far as I am aware," she says. "We have had a number of enquiries on this front but haven't funded anything yet." In Crystallex (Re), 2012 ONCA 404, the Ontario Court of Appeal upheld the financing arrangements despite strong opposition from most of Crys- tallex's creditors, affirming the great f lexibility and discretion that s. 11.2 of CCAA gives to a supervising CCAA judge to ap- prove so-called 'interim' financ- ing. "The cost issue has to be weighed," says Gerry Aposto- latos of Langlois Lawyers in Montreal, which often assists law firms across Canada with Quebec-related issues, especial- ly in relation to insolvency in bankruptcy. "Where there are files with no funding, and without fund- ing there is no lawsuit, it makes perfect sense to seek assistance." Ken Rosenberg of Paliare Ro- land Rosenberg Rothstein LLP of Toronto gives an example of the involvement of third-party funders in the insolvency re- lated class action of The Trust- ees of the Labourers' Pension Fund of Central and Eastern Canada v. Sino-Forest Cor- poration, 2012 ONSC 2937, where one representative had third-party funding. He also points to the class ac- tion related to the Lac-Mégantic disaster as a case suitable for the arrangement. "There was no third-party funder, but the receiver ended up having a contingency fee because the Canadian state ran out of money," he said. "The monitor itself got a bo- nus $10 million on $10 million fee because it went at its own risk. It could have gone out and got someone to back it instead." Kauffman says there are dif- ferent court officers depending on which insurance regime you are involved with, such as trust- ees in bankruptcy when the business is not operating any- more, receivers when secured creditors have forced the busi- ness into receivership and mon- itors when the debtor still runs the business under supervision. In reality, these roles are all undertaken by the same insol- vency professionals. "All three types of court of- ficer could benefit from using third-party insurance," he says. Kauffman says in bankrupt- cy proceedings where there is not enough money in the estate to pursue a claim is a natural situation for a third-party ar- rangement. He says this is particularly the case if there have been im- proper transactions, fraudulent transactions or preferential pay- ments. "In the case of a receiver, where there is a piece of litiga- tion — a cause of action that a debtor has — and the secured creditor doesn't want to fight it, that is also a natural situation for the receiver to make a fund- ing arrangement," he says. "Similarly, this applies to restructuring under the Com- panies' Creditors Arrangement Act where there is a monitor. If there are not sufficient funds and creditors are not willing to take the risk of proceeding, either the debtor company or the monitor could enter into an arrangement." Apostolatos says whoever may be legally invested with the claim to sue, whether it is the insolvency professional or the creditor, could seek funding. "Assuming lawyers can't be found to take the case on a con- tingency basis, litigation fund- ing can be very helpful. The lawyer must also manage his or her risk and so may be the one driving the litigation funding," he says. "More complex claims that proceed over years, not months, might require a lot more fund- ing. Not every firm is prepared to take them on. They may mix it up and do some files on con- FOCUS Aubrey Kauffman says 'litigation funding is a relatively new product in Canada.' See No, page 12 NO TRANSFORMATION WITHOUT INSPIRATION The Canadian Lawyer InHouse Innovatio Awards celebrate in-house counsel, both individuals and teams, who have found ways to show leadership by becoming more efficient, innovative and creative in meeting the needs of their organizations within the Canadian legal market. Date: Sept. 19, 2017 Location: Arcadian Court, Toronto 6 p.m. Cocktail Reception 7 p.m. Gala Dinner and Awards Presentation Emcee: Jennifer Brown, Managing Editor, Canadian Lawyer InHouse/Law Times Dress: Business Attire To book your seats or to inquire about sponsorship, contact us at 416-649-8841 or MediaSolutions.Sales@thomsonreuters.com www.innovatio-awards.com HOSTED IN PARTNERSHIP WITH BRONZE SPONSOR BRONZE SPONSOR COCKTAIL SPONSOR PLATINUM SPONSOR GOLD SPONSOR GOLD SPONSOR Untitled-5 1 2017-07-20 2:28 PM

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