Jurisdictions Expanding Funding Access for Offshore Asset Recovery

As parts of the world seek out post-COVID normalcy, a predicted spike of legal claims is en route. Insolvencies are increasing, as are claims of fraud, breach of contract, and breach of fiduciary duty. With that in mind, a group of practitioners who deal in fraud, insolvency, and enforcement held the Asset Recovery Americas Conference—focusing on enforcement law in Latin America and the United States.

Validity Finance details that several prominent jurisdictions are adopting policies more welcome to litigation funding in insolvency matters. Adding needed clarity to the use of third-party legal funding is a boon to clients and lawyers—but also to investors.

The newly passed Private Funding of Legal Services Act, adopted last month in the Cayman Islands, makes several important changes in the law. First, champerty and maintenance laws were stricken. Contingency fee agreements and conditional fee arrangements are now permitted—with caps on how much lawyers can be paid above their normal fees. Finally, it allows for the use of third-party litigation funding agreements, with specific stipulations on how payments are calculated.

The British Virgin Islands have accepted litigation funding since the late 1990s when they abolished champerty laws. The practice of third-party funding is seen as a vital part of ensuring access to justice. Meanwhile, Brazil allows funding, but has no laws in place governing the practice. Funding has yet to become mainstream there—which means that new laws may be on the horizon as legal and financial practitioners embrace the practice. The potential for growth is enormous, though a clearer legal framework is needed.

Similarly, Argentina has no legislation directly impacting litigation funding—so restrictions are minimal. Legal fees are high in Argentina, and scandals are common. As such, there’s a widely held belief that litigation funding should be mainstreamed to provide citizens better access to the legal system.