More bad news if you're a company director or creditor – where it's all gone wrong and how to avoid personal bankruptcy – Part 1

The Cork Report of 1982 recommended a fundamental change in the approach to corporate insolvency. It recommended that the focus should shift from the interests of creditors to the rehabilitation of the insolvent company.

The Insolvency Act 1986 implemented many of the Cork Report's recommendations. It introduced the concept of administration, which allows a company to be rescued rather than wound up.

Litigation funders have identified the pursuit of company directors as a profitable business. They fund insolvency practitioners to bring claims against directors on behalf of creditors.

The claims are brought under the Insolvency Act 1986. The most common claims are for wrongful trading, fraudulent trading, and misfeasance.

The litigation funders take a percentage of any recovery. They have no downside risk. If the claim fails, they lose their investment. If it succeeds, they take a significant share of the recovery.

Directors are a soft target for litigation funders. They are often individuals with personal assets. They may have given personal guarantees to the company's creditors.

They may not have the resources to defend a claim. They may not have directors' and officers' liability insurance. They may not have taken legal advice before the company became insolvent.

The litigation funders know this. They use it to their advantage. They make offers to settle that are difficult to refuse.