The ability to fund insolvency litigation can make a significant difference to realisations in an insolvent estate. Although many claims are now assigned to specialist funders (where the funder both runs and funds the claim) some insolvency practitioners have (at least until the Supreme Court decision in PACCAR came along) used litigation funding agreements (LFAs) to pursue litigation themselves, for the benefit of the estate.

However PACCAR brought LFAs into question, when the Supreme Court found that the terms of the LFAs in that case were in fact Damages Based Agreements and therefore were unenforceable because they were non-compliant with the DBA Regulations (the funder was paid as a % of the damages) – read our previous blog for a reminder of the decision.  This in turn led to some LFAs being amended to avoid being captured by the DBA Regulations (the funder to be paid as a multiple of their investment).

Although PACCAR did not significantly affect the funding of insolvency claims, there were plans to redress its impact by including a provision in the Litigation Funding Agreements (Enforceability) Bill (explained here) but this Bill stalled when a new Government came into power and has not proceeded.

Whilst the parliamentary process has stalled, judicial decisions march on with the Court of Appeal handing down a judgment on 4 July in which it considered an LFA that was amended post PACARR unanimously dismissing a challenge to its validity based on a multiple of funding provided.

The chancellor of the High Court Sir Julian Flaux made clear that DBAs are agreements under which the representative’s fees are calculated or determined as a percentage of the damages recovered, and an LFA under which the funder’s fee is calculated as a multiple of its outlay is not a DBA. Agreeing with the submissions of Nicholas Bacon KC for the claimants, he said: ‘[T]he fee is determined by reference not to the damages recovered, but by reference to the amount of funding provided. The fact that the source of the fee paid is the damages does not turn it into a DBA, nor does the fact that there is an upper limit or cap on the funder’s fee recoverable by reference to the amount of damages recovered. The fee is still calculated or determined by reference to the amount of funding provided.’

Therefore, providing additional clarity on the different terms as to funding which will and will not be captured by the DBA Regulations.

Not only that but on 2 June 2025 the Civil Justice Council (“CJC”) published its Final Report on litigation funding. The 149-page Report is a comprehensive review of how third-party litigation funding currently operates in England and Wales. It identifies numerous areas of concern and sets out 58 recommendations.

For now, the CJC’s view is clear. PACCAR was a mistake. It should be reversed. But not by a one-line Bill that simply changes the law. Instead, a full statutory regime should be enacted to bring third-party funding within the rule of law.

To date litigation funding has largely been self-regulated. The vision of this report is to embed the commercial practice of funding within a framework of legal accountability. Whether it makes it to the statute books remains to be seen but if it does then this will significantly  impact the litigation funding market and those reliant upon it – watch this space.