The High Court has provided important clarification on the relation between litigation funding, administration expenses and the “super priority” afforded to certain moratorium debts.

In Re Cross Transport Ltd (In Administration) [2026] EWHC 1636 (Ch), the court held that administrators may, in appropriate circumstances, enter into litigation funding arrangements allowing a funder to be repaid from litigation proceeds before creditors whose debts have protected or “super priority” status following a moratorium.

The decision is significant for insolvency practitioners and litigation funders because it confirms that statutory priority for certain moratorium debts does not necessarily mean those creditors must be paid before every expense incurred during an administration.

Background to the case

Cross Transport Ltd entered a statutory moratorium under Part A1 of the Insolvency Act 1986 and incurred debts of approximately £643,000 during the moratorium. The company subsequently entered administration within 12 weeks of the moratorium ending. This triggered paragraph 64A of Schedule B1, which requires certain moratorium debts and priority pre-moratorium debts to be paid ahead of other creditors.

The company’s assets were relatively limited, but it had potential litigation claims that could generate a significant recovery. Pursuing those claims depended on third-party funding from Pythagoras Capital Limited.

The funder indicated that it would not continue funding unless it could be repaid from any litigation proceeds ahead of the protected moratorium creditors.

The administrators therefore sought directions from the High Court on whether litigation expenses and the funder’s recovery could be paid from the proceeds of successful litigation before the protected debts.

What did the High Court decide?

ICC Judge Jones concluded that paragraph 64A does not prevent administrators from paying the costs and expenses of litigation, including a litigation funder’s recovery, from the proceeds generated by that litigation before paying protected moratorium creditors.

However, this is not an unrestricted power. Any arrangement must be consistent with:

• The purpose of the administration;
• The administrators’ statutory functions;
• Their duties; and
• The specific circumstances of the case.

The court distinguished between having “super priority” and having an absolute right to receive payment before any administration expenses are incurred.

Why the decision matters

The court recognised the practical difficulties that would arise if administrators were unable to incur and pay legitimate expenses until protected moratorium debts had been discharged.

For example, an administrator may need to spend money pursuing litigation or taking other steps to increase the value of the company’s assets. Without the ability to pay those costs, potentially valuable claims could simply remain unresolved.

As the court recognised, administrators and their professional advisers cannot reasonably be expected to undertake work indefinitely without payment.

The decision therefore supports a practical interpretation of paragraph 64A that allows administrators to manage the administration, pursue appropriate claims and incur necessary expenses while still respecting the enhanced position of protected creditors.

The importance of litigation funding

The decision is particularly relevant where litigation represents one of the company’s main remaining assets. A company in administration may have limited cash or physical assets but potentially valuable claims against directors, connected parties, lenders or other third parties. Pursuing those claims can require substantial legal and expert costs.

Third party litigation funding can provide the capital needed to pursue a claim where the insolvent estate cannot fund the litigation itself.

The Cross Transport decision provides greater certainty that, where litigation is properly pursued for the purposes of the administration, a funding agreement may allow the funder to be repaid from the litigation proceeds before protected moratorium creditors.

This could make claims commercially viable that might otherwise have to be abandoned.

Funding options for administrators and insolvency practitioners

Where an administration has insufficient funds to pursue potentially valuable litigation, several funding options may be available.

After-the-event (ATE) legal insurance – ATE insurance can provide protection against certain adverse costs liabilities and can sometimes be combined with other funding arrangements.

For insolvency practitioners, ATE insurance can help manage the financial risks associated with pursuing litigation where the outcome is uncertain.

Third party litigation funding – A specialist litigation funder can finance some or all of the costs of pursuing a claim in return for an agreed share or recovery from the proceeds.

This can be particularly useful where the claim has strong prospects, but the company or estate does not have sufficient cash to fund the litigation.

Assignment of litigation – Some claims may be assigned to third parties. This can provide an immediate return to the estate, together with a share of future recoveries, while transferring litigation risk.

Assignment can be particularly suitable for lower-value disputes, while larger or more complex claims may benefit from the office holder retaining control through external funding.

How Annecto Legal can assist

Annecto Legal provides support to clients dealing with complex litigation and funding issues, including matters arising in insolvency and administration. We work with a broad network of insurers, litigation funders and claim purchasers to help practitioners fulfil their statutory duties while protecting insolvency estates from unnecessary financial risk.

Our team provides independent written reports comparing available insolvency litigation funding options, enabling practitioners to demonstrate that appropriate consideration has been given to funding and risk management.

Whether you are investigating an insolvency claim, pursuing asset recovery proceedings or defending insolvency litigation, Annecto Legal can help you identify the most suitable funding solution and maximise the prospects of a successful outcome.