What the 2020 carve-out still means for insolvency practitioners in 2025
Litigation Funding for Insolvency Matters: Five Years On
It’s been five years since the Treasury stepped in to protect litigation funding for insolvency matters,
and that decision still matters today.
In July 2020, Treasury registered the Corporations Amendment (Litigation Funding) Regulations 2020, which
clarified that funding agreements used in insolvency-related litigation are not classified as managed
investment schemes (MIS).
This specific carve-out was a critical win for the insolvency industry, protecting the practical use of
litigation funding by liquidators, administrators and trustees without burdening them (or funders) with
unnecessary red tape.
So, What Did the Regulations Do?
They confirmed that:
- Litigation funding agreements used in the course of insolvency or bankruptcy proceedings are exempt from
being considered managed investment schemes under the Corporations Act. - This meant no registration, no compliance obligations under Chapter 5C, and no delays due to MIS
licensing issues.
Why It Mattered in 2020 (and Still Does)
Before this amendment, there was real concern that insolvency litigation funding might become too complex,
or even unworkable, under the same rules that govern investment funds.
That would’ve created a chilling effect on recoveries for creditors.
Thanks to sector-wide advocacy, Treasury acted fast. The carve-out restored clarity and ensured funding
could continue to be used as the critical recovery tool it is today.
Pretium’s Position
We were, and remain, strong supporters of this carve-out. It protects the work of insolvency professionals
and ensures that meritorious claims aren’t left to rot for lack of funding.
More importantly, it allows funders like Pretium to act quickly and flexibly without dragging liquidators
into complex compliance frameworks that were never meant for insolvency work.
What’s Changed Since Then?
While this regulation laid the foundation, the landscape has continued to evolve:
- The 2022 LCM Funding v Stanwell case reinforced that litigation funding is not an MIS in general
(not just in insolvency). - Recent high-profile insolvency matters have demonstrated how vital funding is for enabling liquidators to
act confidently and recover real value for creditors. - With record insolvency numbers in FY2025, having streamlined access to funding matters more than ever.
Final Word for Insolvency Practitioners
If you’re assessing a potential claim in 2025, rest assured: litigation funding remains a practical,
compliant, and court-accepted tool to support your work.
And thanks to the 2020 carve-out, the legal path is clear.
Got a claim worth funding?
Let’s talk.
