Moloney: Second substantive resolution from fund
A listed litigation funder has announced a £12m profit on a £4.5m investment in the litigation that followed the collapse of electronics retailer Comet.
The precise return on investment was 261%.
Last year, the High Court found in favour of Comet’s liquidator – backed by Litigation Capital Management (LCM) – against its former parent company, Darty, in respect of a preference paid to a Darty subsidiary in the run-up to Comet’s administration in 2012.
Darty was ordered to pay £110m, believed to be the largest ever (by value) preference claim successfully brought under the Insolvency Act 1986. The decision is now under appeal but the defendant had to pay the £110m into court in the meantime.
LCM announced this week that the liquidator had bought a judgment protection insurance policy while the appeal process continued.
An application was then made to the court for payment out of sufficient monies to cover LCM’s entitlement under the funding agreement as well as the costs of defending the appeal.
LCM explained: “The use of judgment protection insurance provides a mechanism for the liquidator to reduce the overall cost of litigation finance by utilising funds from the Judgment at first instance. Additionally, it allows LCM’s investment to be realised.”
Three-quarters of the £4.5m investment came from LCM’s managed fund, Fund I, and the other quarter from LCM’s balance sheet. But a £2.6m performance fee for LCM meant it received £5.6m of the gross profit and the fund £6.2m.
LCM chief executive Patrick Moloney said: “This is the second substantive resolution of a Fund I investment. It provides a further example of how the use of managed third-party investment funds leverages the return to LCM’s balance sheet and its equity investors.”
The company’s shares jumped 10% following the announcement.
The first resolution was announced in February after the confidential settlement of a claim it backed against KPMG as the former auditor of the collapsed construction company Carillion.
LCM invested £9.1m in this – also split 75/25 – and achieved a profit of £6.8m. Again there was a performance fee, and so LCM and Fund I shared this equally as a result.
LCM raised £120m for Fund I and has fully committed it in 26 investments. Currently £62m is committed from Fund II.
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