UK-wide: A Litigation Funding: Insolvency Overview

Demand for insolvency litigation finance continues to grow as the number of UK insolvencies proceeds on an upward trajectory. After reaching a 30-year high in 2023, annual company insolvencies remained at similarly high levels in 2024 and 2025. The latest monthly figures for 2026 also point to continued activity, with creditors’ voluntary liquidations remaining the dominant procedure and compulsory liquidations again forming a more significant part of the landscape.

In insolvency, there is a very particular need for third-party finance. Typically, there are minimal or no funds left in the insolvent estate, a state of affairs often brought about by the former directors who may well be the targets of claims. The actions of a misfeasant director in the months and years prior to the company entering into administration or liquidation can result in the office-holder when appointed being left without a fighting fund. Where there are funds, creditors may not be keen on those monies being placed at risk in litigation. Third-party finance can enable claims, whether against former directors or large institutions such as banks, to be pursued that otherwise would not see the light of day, while also de-risking the office-holder and the insolvent estate. Lawyers acting for the assignee or for the insolvency practitioner (IP) under a funding agreement can be paid for their work as the claim progresses rather than working on a contingency basis. An initial consideration on entering into the purchase or funding agreement provides an immediate cash injection into the estate. In a well-structured purchase or funding agreement the funder assumes all risk and the insolvent estate receives a minimum of 50% of the net realisation with a ratchet increasing the estate share on larger claims. Typical claims are for breach of duty against the former directors and antecedent transaction claims such as transaction at undervalue or preference. Wrongful trading, fraudulent trading, claims in professional negligence and against banks are more challenging causes of action and third-party finance can ensure these claims are properly resourced and the costs of expert evidence covered in addition to solicitor and counsel fees.

The key question is not simply whether a claim has legal merit. It is whether the claim can be assessed, financed and enforced in a way that produces a real return for insolvent estates. Insolvency litigation is not an abstract legal exercise. It is a recovery process. For IPs, solicitors and specialist funders, the focus is moving earlier towards commercial viability: the quality of the evidence, the financial position of potential defendants, the availability of assets, insurance cover where relevant, and the practical route to enforcement.

Claims that cannot be converted into realisable recoveries are less likely to justify significant time and cost, particularly where insolvent estates have limited resources. This has placed greater emphasis on early case assessment, proportionate investigation and clear recovery strategy from the outset.

It has also influenced the profile of claims attracting attention. Lower- and mid-value claims remain common, and there is still a significant volume of them. But there is greater focus on claims where the likely recovery justifies the cost, risk and complexity of pursuing them. Higher-value claims can include multi-party actions, longer-running trading histories, more complex financial arrangements, professional negligence claims where insurance may respond, or where there is a clear asset base against which enforcement can be planned.

This is where a specialist provider of insolvency litigation finance has a particular role to play: the specialist assessment of evidence, economics, defendant means and enforcement prospects and the optimum procedural routes can help ensure that estate resources are focused on claims with a realistic prospect of recovery. A strong track-record of financing the full range of insolvency litigation claims over many years brings experience to complex and high-value claims.

Technology, including artificial intelligence, is likely to play an increasing role in the assessment process. Its immediate value is in assisting with large volumes of data, identifying transaction patterns, and supporting document review. Used properly, AI may assist with proportionality and cost control. It should, however, remain a support tool rather than a substitute for legal and commercial judgment. Insolvency claims often turn not only on documents, but on credibility, evidential weight, defendant behaviour, recoverability and enforcement strategy. Those judgments still require experienced human assessment.

Enforcement remains pivotal. The ability to convert a judgment or settlement into cash is often the determining factor in whether a claim delivers value to creditors. For that reason, enforcement should be considered at the outset rather than at the end of the litigation process. The nature and location of assets, competing claims the likely behaviour of target defendants all inform whether a claim should be advanced.

Looking ahead, the market is likely to remain active but disciplined. Continued corporate distress should generate further insolvency claims, but cost pressure and proportionality will keep the focus on selectivity. Claims with strong evidence, procedural robustness, proper funding and a realistic route to recovery are likely to attract the greatest attention.

The direction of travel is towards a more commercial, data-informed and recovery-focused insolvency litigation market. In that environment, value will be created where the claims are supported by experts who add value to the legal and commercial assessment of claims in addition to full financial backing.

The IP or insolvency lawyer seeking insolvency litigation funding should consider the following questions:

• The financial strength of the funder – does it have a balance sheet which will meet all own and adverse costs and defeat any security for costs challenge?
• Will the funder provide a complete indemnity to the estate and the IP, or does it require the IP to take out ATE insurance?
• Will the funder agree that the IP’s chosen solicitors are instructed, whether the claim is funded or purchased?
• Will the funder pay lawyers for their work or require them to work on a conditional basis?
• The expertise and track record of the funder – does it have the necessary skill and experience to assess and price risk and to work with external lawyers to run litigation in a proportionate and effective manner?
• Does the funder have a nationwide network that connects with IPs and insolvency lawyers throughout the UK?
• Is the funder recognised in the insolvency industry, and does it have the reputation of always following through on claims?

An IP has a duty to realise company assets for value and a claim or cause of action is an asset just as stock or plant and machinery are. It is well established that an IP has wide discretion when making commercial decisions, and consideration of these factors will facilitate an informed decision and optimise returns to the insolvent estate.