Consideration of the expediency of litigation funding required

In Fortress Credit Corporation (Australia) II Pty Ltd v Fletcher [2011] FCAFC 89, the Federal Court dealt with an application by a non-party for leave to appeal the decision to approve a liquidator's entry into a litigation funding agreement.

The court held that the orders made by the primary judge should be set aside and the proceedings should be remitted for further consideration of whether the entry into, and performance of, the obligations under the litigation funding agreement is necessary for winding up the affairs of the funding party, within the meaning of section 477(2)(m) of the Corporations Act.

This case serves as a reminder that s 477(2)(m) would not support the provision of litigation funding by a liquidator, solely on the prospect of obtaining a return that might be generated by the funding agreement. In order for the agreement to be deemed necessary within the meaning of s 477(2)(m), the agreement must enable the liquidator to do anything expedient in the beneficial pursuit of winding up the affairs of the company and the distribution of its property.