The Parliamentary Joint Committee on Corporations and Financial Services (Committee) recently released its final report on Litigation funding and the regulation of the class action industry (Report).

Background

The regulation of litigation funders in Australia has been the subject of much debate and media attention. Earlier this year regulations were passed which mean litigation funding schemes are subject to the provisions of Chapter 5C of the Corporations Act, including the scheme registration requirements. In addition, people in the business of providing financial services in relation to litigation funding schemes generally need to hold an AFSL. While Labor sought to quash the new litigation funding regulations by moving a disallowance motion in the Senate, the motion was unsuccessful and the changes brought about by the new regulations remain in place.

ASIC relief

The application of the Corporations Act to litigation funding schemes has created considerable uncertainty. ASIC has addressed some of the issues by granting relief from several requirements which would otherwise apply to registered litigation funding schemes. While the Committee supports the new regulations generally it acknowledges the issues presented by the new regulations.

Recommendations

In its Report, the Committee recommends the Government legislate a fit-for-purpose managed investment scheme regime tailored for litigation funders. In addition, the Committee also recommends the Government explore a proposal put forward by Senator Pauline Hanson in the context of her potential support for the disallowance motion in the Senate.

Specifically, the Committee recommends the Government consult on—

• the best way to guarantee a statutory minimum return of the gross proceeds of a class action (including settlements)
• whether a minimum gross return of 70 per cent to class members, as endorsed by some class action law firms and litigation funders, is the most appropriate floor
• whether a graduated approach taking into consideration the risk, complexity, length and likely proceeds of the case is appropriate to ensure even higher returns are guaranteed for class members in more straightforward cases.

What's next?

We will keep you up to date with further developments. Contact us if you need to understand more about the Report or the application of the financial services regime to litigation funders.