The Association of Litigation Funders (ALF) have demonstrated a willingness to increase the threshold of capital that sits within the control of their funder members so that the code is seen to improve and adapt to the growing marketplace.
The capital adequacy provision found at 9.4.2 of Code of Conduct is currently set at GBP5m, as amended in July 2016, having originally been set at as low as GBP2m in 2014.
The test itself was designed to be pretty nominal in so far as it needed to be low enough to avoid any criticism that the association was stifling competition but also needed to be high enough to prevent people without capital holding themselves out as funders (when in fact they are intermediaries shopping for funding themselves to create a back to back arrangement). Such people were amusingly referred to as “faux funders” and certainly very different from brokers like TheJudge who act as agent for the client seeking funding. It is a practice that still occurs now but the ALF kitemark provides a clear distinction.
Indeed, it was revealed that the capital adequacy test has done its job as one applicant has recently had their application rejected by ALF on the grounds that they could not meet the capital adequacy test. This has come as a surprise given the bar itself was widely regarded as being so low that it would unsustainable to be a professional funder for commercial risks. There are very few funders who could build a portfolio of deals with less than GBP 5m. It is likely no-one really expected the provision to be much more than window dressing but in fact it does have substance and perhaps this was example of another faux funder operating in the market.
The worrying point about this revelation is that it is very likely that said funder is still operating in the market and could well be in negotiations with lawyers now, lawyers who will be incurring billable time in the legitimate expectation that the funder has the funds ready to deploy.
Is the cash ready and waiting or is the funder making a litigation funding application of their own behind the scenes? Asked the experts before you waste your time.
Director – TheJudge Limted
President – TheJudge Canada Limited