The recent uptick in bankruptcy and insolvency filings in Canada and the U.S. may be the tip of the iceberg given increasing levels of economic uncertainty. In this era of global economic integration, many of these insolvencies will have cross-border components.
To help address cross-border matters, the Companies' Creditors Arrangement Act (CCAA) allows Canadian courts to recognize insolvency orders from foreign courts. In recent weeks, an Ontario Court recognized an arrangement order of a UK court for Syncreon B.V., the first time that a Canadian court has recognized a UK insolvency proceeding under the CCAA. On the same day, the Ontario court also recognized an order of a New York bankruptcy court for pharmaceutical company Purdue Pharma LP. In an analog to the CCAA provisions, Chapter 15 of the U.S. Bankruptcy Code allows debtors who have obtained insolvency orders in a foreign jurisdiction to have those orders recognized in U.S. bankruptcy courts.
A litigation funder can provide a financially strapped company the money it needs to access the court system and realize the benefits of the CCAA. For example:
- a litigation funder can provide seed funding to monitors and trustees to investigate potential litigation claims, which may ultimately increase the funds available for distribution
- a litigation funder can pay for legal fees, expert reports and other disbursements to pursue meritorious claims, without diverting assets from the estate
- litigation funders have expertise in tracing assets and enforcing judgments, thereby increasing the likelihood a successful litigant can convert a judgment into cash
- a global litigation funder has relationships with experts on the ground across jurisdictions, who can help coordinate strategy and global enforcement
In the midst of insolvency or bankruptcy proceedings, absent third party funding, impecunious debtors may leave litigation assets on the table, to the detriment of all creditors. Working with a litigation funder can increase the funds available for distribution, and can be a particularly helpful tool in the era of cross-border proceedings.
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