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Enforcement of Matrimonial Orders and potential funding options
Date: 12/05/2020 Type: Articles Topic: HNW Divorce | Finances |Disputes within HNW Divorces are increasingly common.
Clients can spend considerable sums and years fighting for a successful Matrimonial Order (Order), which they envisage will be paid after an Order is obtained.
However, often that is not the case. By the time the Order is obtained the Client finds that the spouse has hidden assets offshore, or placed them in such complex structures that makes enforcing the Order incredibly difficult and often these additional costs mean it is just not feasible for them to pursue the matter further.
So how do you ensure your clients do not find themselves in a situation where they receive an Order which they are unable to enforce? Enforcement must be a key part of the strategy from the beginning and kept in mind when dealing with HNW Divorce and when options for settlement or litigation are being considered.
Prevention is easier than finding a cure
From the outset it is imperative clients identify the assets available to secure their award against.
If there are doubts over the accuracy of the information provided by the spouse, clients should consider instructing a forensic specialist to undertake a Form E review, which will question the assets and values listed.
In addition, Corporate Intelligence services can be utilised to look at Open Source information or use Human Intelligence to investigate the asset position, identify hidden assets, provide a breakdown of complex corporate structures, including jurisdictions of various entitles and establish the ultimate beneficial owner.
Understanding jurisdictions is key, as in each location the enforcement approach, the cost of enforcement and funding options available will vary significantly as further detailed below.
Knowing this information gives you time to devise your enforcement strategy and discuss funding options, so you are prepared and ready to act if it becomes necessary.
The hope is that these HNW Divorces are settled or dealt with by way of mediation. In these situations, being able to evidence that false asset information or values have been presented, by providing an independent financial experts report, means clients will inevitably be able to negotiate a higher settlement than would otherwise have been offered.
If, however, settlement or mediation is not possible and the matter goes to litigation and an Order is obtained and your client cannot recover what is due to them, you are immediately ready to move forward with your enforcement strategy.
Enforcement strategy
The enforcement strategy has to be asset and jurisdiction specific.
Hence, once you have identified the assets and their location, you need to engage with professional advisors/solicitors in the jurisdictions identified and then discuss how you can safeguard the assets from dissipation during the course of the enforcement/litigation. Processes such as Court Appointed Receivers (CAR) of Freezing Orders (FO) can be used effectively in these situations and are discussed briefly below.
A Court Appointed Receiver is a very powerful tool. The powers are determined in the Court Order and are adapted to suit what you require from that particular situation. A CAR can be appointed over just about anything including legal claims, shares in companies which hold underlying assets, properties and valuable assets such as yachts and aircraft.
It is also worth considering a FO, whether a FO would assist will depend on the location and jurisdiction of the assets. If the assets are overseas you would need to consider a Worldwide FO (WFO) and if this would be recognised in the relevant jurisdictions. If a WFO would not be recognised, you should speak to the lawyers in the local jurisdiction to establish if there are any other measures that can be put in place to secure the assets.
Insolvency is also an effective tool, which can be deployed in suitable situations, as the powers of an Insolvency Practitioner (IP) are wide ranging and are recognised in the EU and most common law jurisdictions. Even the threat of insolvency can sometimes be sufficient to elicit an offer of settlement.
There are also all the powers that an IP has to bring claims for antecedent transactions such as transactions at an undervalue, preference claims, misfeasance claims. These can all be used to realise assets for the benefit of the client.
Funding the enforcement of Matrimonial Orders
The funding of enforcement of Matrimonial Orders is now feasible and, since the enforcement proceedings themselves are often civil proceedings, are not necessarily constrained by the funding rules of the Family Legislation. Accordingly, funding might take on the form of a full-recourse litigation loan that practitioners in the field are likely used to, or alternatively a non-recourse litigation funding arrangement.
A litigation loan will take a standard format, and since the borrower will be the person looking to enforce the Order, will likely be a regulated credit agreement written under the Consumer Credit Act 1974. Lenders offering such loans will need to consider carefully the affordability of such a loan, including in the event of full or partial failure of the enforcement action, to ensure compliance with the regulatory regime. This means that the use of litigation loans may be limited, however they can unlock smaller claims. The loan will need to be repaid at the earliest opportunity out of the proceeds of enforcement.
Litigation funding arrangements have been used to enforce all manner of court orders for some years. Such arrangements are typically non-recourse in nature (meaning that in the event of losing, the funds will not need to be repaid), but where the funder, upon success, will take a return of capital invested plus either:
- a multiple (typically 2 – 3 times) of the funds invested into the case; or
- a percentage of the recoveries (typically 20 – 30%).
The definition of “success” will be defined in the litigation funding agreement, but typically will be all monies recovered. Some funders will also require the legal team taking on the enforcement to work on a Contingent Fee Agreement (CFA). Where such a CFA is in place, a waterfall will need to be agreed to ensure a fair repayment structure for all the invested parties.
The type of funding available will depend on the funder (most will only provide one solution) and the associated costs will depend on the risk involved of moving the enforcement proceedings forward.
These risks need to be considered on a case by case basis but some of the key issues will be the types of assets against which the Order may be enforced, their liquidity/risk of dissipation, the jurisdiction and structure in which the assets are held and whether the jurisdiction maintains any public policy provisions that would prevent enforcement of an English Order.
The funding of enforcement proceedings is often complex and at times not without risk to all parties involved. The size of the award in the Order and attitude of the other side and any third parties (such as trustees) will have a material impact on the overall assessment of the value of funding enforcement proceedings.
Conclusion
Enforcement of an Order is not straightforward, and it will often take time to recover the funds and will likely require significant investment or a CFA/funding agreement to be in place.
However, as detailed above, when clients are facing the difficult decision as to whether or not they are able to enforce an Order and recover what is due to them, these funding and enforcement options, when used appropriately, can provide real financial results for clients.
(Schneider Financial Solutions was founded in 2013 to provide innovative funding solutions in litigation finance. It is at the forefront of matrimonial funding, has successfully funded tens of millions of pounds of enforcement over the past 2 years with stand-alone enforcement products.)
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Hannah Davie& Michael Leeds of Grant Thornton UK LLP - Alex Cooke and Alex Hulbert of Schneider Financial Solutions
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