Property Ventures Ltd (PVL) went into liquidation in July 2010.
In 2012, the liquidator of PVL, along with several other interested parties, issued proceedings against the company's directors, valuers and its auditors. The proceeding was funded by an investment company, SPF No 10 Ltd (SPF), which received a first ranking security interest over PVL's assets. In addition to the funding agreement, SPF negotiated a deed of assignment with one of PVL's main creditors, Allied. Pursuant to the deed, SPF was assigned all of Allied's debts and securities, including rights of action against various parties.
One of the defendants unsuccessfully applied to the High Court to stay the proceeding on the basis that:
- PVL's litigation funding arrangements, together with the assignment, constituted an abuse of process. In particular, that the liquidator was acting for an improper purpose by pursuing a claim that stood to disproportionately (if not exclusively) benefit SPF, to the exclusion of unsecured creditors
- PVL's litigation funding arrangements, together with the assignment, amounted to a bare assignment of PVL's claim, which is unlawful in New Zealand.
On appeal, there was a challenge to the High Court's finding that the agreement and deed, when read together, was not a bare assignment. The Court of Appeal dismissed the appeal on the basis that:
- The funding agreement was not an assignment of a cause of action. The claim remained with PVL and is being prosecuted by the liquidator
- The funding agreement (in itself) was not objectionable. Rather, it was the combination of the funding agreement and the assignment that together were said to give SPF excessive compensation and control
- SPF would receive the net proceeds of the proceeding as secured lender in accordance with the GSA, not in its capacity as litigation funder
- Without knowing exactly how much would be recovered in the proceeding and the costs of the litigation, it was not possible to conclude that SPF would be paid disproportionately to its investment or that there would be no return to unsecured creditors.
See Court decision here.