In insolvency cases, one of the primary objectives is to maximise the value of the insolvent entity’s assets to repay creditors. When a partnership dissolves, the way its assets are handled can significantly impact the recovery of value.

The case of Bahia V Sidhu & Anor [2024] EWCA Civ 605 highlights the importance of market-driven valuations to avoid undervaluation or unfair distribution of assets.

Litigation finance, funding arrangements and insurance allow insolvency practitioners to pursue claims on behalf of their clients whilst reducing financial risks. At Annecto Legal, we can assist clients by helping them secure funding and insurance for insolvency cases.

Bahia V Sidhu & Anor [2024] EWCA Civ 605

The case Bahia v Sidhu & Anor [2024] EWCA Civ 605 revolves around a partnership between Mr. Bahia and Mr. Sidhu (represented by his family after his death) regarding the dissolution of a long-standing property partnership.

The partnership between Mr. Bahia and Mr. Sidhu had amassed a valuable property portfolio. Upon the dissolution of the partnership in 2016, following Mr. Sidhu’s death, the High Court originally ordered that the assets be transferred in specie to Mr. Bahia to settle debts owed to the partnership.

The Sidhu family appealed this decision, arguing that assets should be sold on the open market rather than directly transferred. The Court of Appeal overturned the High Court’s decision. It emphasised that the normal practice in partnership dissolutions is to sell the partnership assets on the open market unless there are exceptional circumstances that justify a different approach.

Since no such exceptional circumstances were present, the Court directed that the assets should be sold at auction. This approach ensures that both partners receive fair value for their shares, aligning with established legal principles regarding the liquidation and valuation of partnership assets.

For insolvency practitioners, this ruling highlights the necessity of liquidating partnership assets through sale, providing transparency and maximising value for all parties involved.

Of course, ‘litigation assets’ are no different to physical assets, and fair value should also be sought. It is important to show the process that you have followed to explore the market and secure the best outcome, whilst meeting your professional obligations.

Insolvency litigation funding options

Litigation funding, the assignment of claims and/or ATE insurance can play a pivotal role in assisting insolvency practitioners (IPs) in meeting their obligations. Insolvency practitioners involved in insolvency litigation can make use of the following funding methods:

• After-the-event (ATE) legal insurance– ATE insurance is generally used to protect from adverse costs risks & Security for Costs requirements. After-the-event (ATE) legal expenses insurance is perhaps best thought as a similar to a ‘swap’. For either no upfront fee or a small upfront fee, the insurer takes on all of the risk of the potential adverse costs award. The claimant has swapped their obligation to pay the defendants in the event of a loss, with the obligation to pay the insurer in the event of a win. This ‘swap’ is generally an attractive swap as the client is likely to be in a better financial position following a win than following a loss. Also, the payment to the insurer will only be a percentage of the adverse costs rather than the whole amount.
• Third party litigation funding– In some cases, third party litigation funders may be willing to provide funding for a claim in exchange for a share of any financial settlement or damages awarded. This option can be attractive when there are no funds to pursue a strong case. ATE insurance is often used in conjunction with this type of funding.
• Assignment of litigation – Some types of disputes can be assigned to a third party, usually for an upfront payment and a share of recoveries (after costs). This model can be useful on smaller cases when the ATE and CFA model would not deliver value. But giving up control can sometimes be costly, especially on larger claim disputes.

How can Annecto Legal assist?

At Annecto Legal, we assist a wide range of clients in finding the appropriate insolvency litigation funding, assignment options and after-the-event (ATE) insurance.

Annecto Legal regularly assists licensed insolvency practitioners who are involved in dealing with insolvency and asset distribution matters. If you are in the process of bringing or defending an insolvency dispute and want to find out whether we can assist in helping you fulfil your obligations and secure the right deal, then contact Annecto Legal now.