Although a non-insolvency case the recent case of PACCAR Inc & Ors v Competition Appeal Tribunal & Ors (“PACCAR”) has caused waves in the litigation market (including insolvency litigation market) following the Supreme Court finding that litigation funding agreements (LFAs) where funders recover a percentage of the amount awarded to a claimant are damaged based agreements (DBAs) – which- unless the LFA complied with the Damages Based Agreements Regulations 2013 (“DBA Regs”) means that they are unenforceable.

In PACCAR the court determined that the LFAs in place were in fact DBAs and therefore were unenforceable because they were non-compliant with the DBA Regs.

What does this mean for insolvency practitioners given the use of LFAs and third-party funders is now commonplace? 


PACCAR concerned proceedings brought against truck manufacturing groups who had infringed European competition law through an unlawful arrangement, which resulted in prices being inflated for over a 14-year period. Permission was sought from the Competition Appeal Tribunal (“CAT”) to bring a class action for those who had acquired trucks from the relevant manufacturing groups. In order for the CAT to issue a collective proceeding order (which would have allowed the class action proceedings), it was a requirement for the applicants to show that they had adequate funding in place to meet their own costs, as well as potential adverse costs in the event their claim was unsuccessful. Accordingly, the applicants had relied on LFAs whereby the funders’ remuneration was dependent on the damages ultimately awarded to the claimants.

As a defence, the truck manufacturers argued that such LFAs constituted DBAs pursuant to s58AA of the Courts and Legal Services Act 1990 (“CLSA 1990”). These arguments were heard before the Supreme Court, who held that “claims management services” included provision of litigation funding. As such, the LFAs under which funders recoveries are linked to the amount awarded to the underlying claimants, ought to be considered to be DBAs. Under the DBA Regs Regulations DBAs must comply with certain requirements in order to be enforceable, the LFAs in this case were found to be non-compliant under DBA Regs and were consequently unenforceable.

Impact on Insolvency Practitioners

Litigation funding can be a powerful tool for insolvency practitioners as, frequently, they may be faced with a situation in which they have a viable, and potentially lucrative, claim, but insufficient funds to bring the case themselves. As well as traditional LFAs, insolvency practitioners have, for many years, taken the route of assigning their claims to litigation funders for the funders to take forward in their own name. This has the benefit of providing an immediate payment into the insolvent estate and the estate avoids bearing the costs of the litigation itself. This immediate realisation of the asset is an attractive feature of an assignment of a claim for insolvency practitioners, as it facilitates a speedier resolution of the insolvency process and more timely distribution of assets to creditors than having to wait, potentially years, for litigation to run its course.

The impact of PACCAR on the litigation funding market for insolvency practitioners may, therefore, be limited, as claim assignments are structured differently from LFAs and can be expected to fall outside of the definition of ‘claims management services’, and therefore outside of the requirement to comply with the DBA Regs. However, insolvency practitioners should review any cases where they have used the services of a litigation funder carefully, to assess whether this is the case, or whether they may be dealing with an LFA. 

Whilst it is likely that PACCAR has no impact on claims that have been assigned by insolvency practitioners, it is essential that insolvency practitioners are alive to the implications that PACCAR has on LFAs and that they review their funding arrangements to ensure that any LFAs that they do have in place are compliant with the requirements for DBAs.  

Where active LFAs are in place which are non-compliant swift discussions with lenders will be key to ensure an uninterrupted funding stream and to avoid any potential delays to the ongoing litigation.  If necessary, the terms of the LFA can be amended to ensure that they do comply with the DBA Regs.

PACCAR may also have an impact on concluded cases conducted under an LFA, we are yet to see how this will develop, but it is something that insolvency practitioners should bear in mind in relation to any recently concluded matters.