Unlocking incremental value in bankruptcy estates with legal finance

In 2024, as corporate bankruptcies surge in the US, an increasing number of companies are entering bankruptcy with existing litigation assets in addition to avoidance and other claims that arise post-filing. Debtors and creditors should not overlook a tool to generate incremental value for bankruptcy estates: Selling or substantially monetizing large litigations—valuable collateral that has historically been overlooked as a source of incremental value for a debtor. In this session we will outline some real-life case studies which illustrate the value of legal finance for recovering value for bankruptcy estates. MagCorp: A mining firm had been involved in a long-standing lawsuit against its former holding company, accusing them of driving them into bankruptcy. After winning a $213 million judgment, MagCorp's bankruptcy trustee faced a shortage of funds to continue pursuing the case. To address this cash flow issue, the trustee and their attorney organized a groundbreaking public auction to sell an interest in the right to receive litigation recoveries from the $213 million judgment on appeal. The sale, which amounted to $26.2 million, allowed the estate to liquidate a portion of its contingent asset, mitigate the risk of the appeal, and ensure a minimum recovery for MagCorp's creditors. Maines: A large food service distributor filed for voluntary bankruptcy following increased business pressures due to Covid-19 restaurant closures and was acquired by another company. The main assets in the estate were a portfolio of various food antitrust claims that would be hard for the company to pursue due to a lack of personnel and time constraints. The appointed trustees were able to distribute the cash proceeds from the sale of the litigation assets directly to creditors—generating liquidity that they would otherwise not have been able to access and delivering an accelerated and guaranteed financial result ahead of case resolution. Cox Operating LLC: The recent 363 auction process run by the debtor and its advisor Moelis & Company in the In re: MLCJR LLC Chapter 11 bankruptcy for MLCJR’s subsidiary Cox Operating LLC’s pre-filing litigation claim generated substantial incremental liquidity for the debtor from a litigation claim that in the past may have been overlooked as an independent source of value.