Who gets paid first when a funded case settles?

Usually the funder, after any costs or fees that rank ahead of it. Most agreements return the funder's deployed capital before the claimant receives anything, then pay the funder's return, then the claimant. Some give the claimant a minimum first: AmBase's 2019 amendment paid the company the first $7.5 million of proceeds before its funder's 25% share of the excess. The order matters most when the recovery is small.

What does a real priority order look like?

Zerify's August 2024 agreement with SIM Tech Licensing, filed as an 8-K exhibit, applies proceeds 'first' to approved advance costs plus 15% a year, 'second' to amounts owed under any litigation funding agreement, and 'third' 40% of the remainder to SIM, with the balance to the company. Proceeds are paid into outside counsel's account under an 'irrevocable pay proceeds agreement' and distributed within ten business days.

How do several funders share?

By ranking or pari passu. AmBase's 2026 agreement with its chief executive and a converted agreement with BARC Investments rank pari passu, sharing equally by amount, after a 25% slice of proceeds above $7.5 million owed to the chief executive under the 2019 amendment. Later funders often require to rank ahead of earlier ones, which pushes earlier money and the claimant further down.

Where do lenders and security interests fit?

Security can put a funder ahead of other creditors on the proceeds. Silver Bull granted Bench Walk a security interest in the claim, its proceeds and rights under any appeal bond. Williams Industrial's lender agreement describes a separate Security Agreement with its capital providers and requires their UCC filings to be terminated when the funding ends, so the lender and the funders had to agree on who ranked where.

What happens when the settlement is small?

Lower-ranking parties absorb the shortfall, and the claimant can receive nothing. In the worked example below, a $30 million settlement leaves the claimant $11 million, while a $15 million settlement leaves it nothing after success fees, a deferred premium and the funder. That is why claimants negotiate minimums or caps, and why a funder's priority can make it reluctant to see a low settlement and the claimant eager for one.

Does the order change over time?

It can. AmBase's 2026 agreement changes the funder's entitlement by date: the fund amount plus 50% if proceeds arrive by September 30, 2026, plus 1.0x within 12 months of funding, plus 1.5x within 24 months and plus 1.8x after that. Burford's 10-K says percentage entitlements can 'increase or decrease over time or may depend on the size of the total resolution amount.'

Priority of Proceeds

Litigation Finance & Legal Claims

Definition

The priority of proceeds is the order, set by the funding agreement and any related agreements, in which money recovered from a claim is applied: typically costs and deferred fees, then the funder's capital and return, then the claimant, with any secured lenders, insurers or other funders slotted in by contract. AmBase describes litigation funding as 'generally ... structured so that the litigation funder would receive back their initial funding amount first (i.e. before any recovery is received by the Company).'

Why it matters

The priority of proceeds decides who bears a disappointing outcome. In a large recovery everyone is paid and the order barely matters; in a small one, the order is the outcome, and the claimant at the bottom can be left with nothing while the funder recovers in full. Priority also shapes incentives around settlement, which is why funding agreements include consent rights and claimant minimums. For an investor, a senior position protects the downside. But it can also create pressure from a claimant who would get little from a modest settlement. Ask where the funder ranks against counsel, insurers, lenders and other funders, and whether the client has a guaranteed minimum.

Common misconceptions

•The funder is not always paid first, because deferred counsel fees, insurance premiums, earlier funders or client minimums can rank ahead of it.
•Pari passu does not mean equal amounts, because funders sharing pari passu split in proportion to their entitlements.
•Priority does not guarantee payment, because a senior position still depends on the case producing enough to pay it.
•The order is not fixed for the life of the case, because entitlements can step up with time or with the size of the recovery.
•A secured funder is not alone in the stack, because a claimant's lenders may hold liens too, and their agreements decide who ranks first.

Technical details

Worked example (illustrative): one order, two settlement sizes

Order: counsel's 10% success fee; deferred insurance premium $1.0 million; funder's capital $5.0 million; funder's return of 2.0x capital, $10.0 million; then the claimant.

Settles for $30.0 million: success fee $3.0 million, premium $1.0 million, funder $15.0 million, claimant $11.0 million.

Settles for $15.0 million: success fee $1.5 million, premium $1.0 million, funder capital $5.0 million, funder return $7.5 million (all that is left), claimant $0.

A claimant minimum of, say, $3.0 million ahead of the funder's return would cut the funder to $4.5 million of return at $15.0 million.

Where each party typically ranks

Deferred or contingent counsel fees and success fees, by the fee agreement.

Deferred insurance premiums (ATE), by the policy.

Secured lenders and funders with liens, by their security agreements.

Funders' capital, then their return, in agreed order among themselves.

The claimant, with any minimum it negotiated.

What AltStreet's reviews and filings show

AmBase 10-Q (June 30, 2026): 2019 amendment, first $7.5 million to the company, then 25% of the excess to the funder; 2026 agreements pari passu with time-based tiers; funders 'would receive back their initial funding amount first.'

Zerify 8-K EX-10.1 (August 25, 2024): costs plus 15% a year first, LFA amounts second, 40% of the remainder third; proceeds through outside counsel's account.

Bench Walk was entitled to 'a share of any proceeds arising from the Claim ... of up to 3.5x Bench Walk's capital outlay (or, if greater, a return of 1.0x Bench Walk's capital outlay plus 30% of Claim Proceeds),' secured by a security interest in the claim, its proceeds and rights under any appeal bond.

Williams Industrial 2022 10-K EX-10.13: a lender's agreement describing a Capital Provision Agreement and Security Agreement of September 1, 2020 with UCC filings by the capital providers.

Questions about the priority of proceeds

Who ranks ahead of the funder, and for how much?

Does the claimant have a minimum, and from what point?

Are there other funders or lenders with security over the claim or proceeds?

Does the order change with time or recovery size?

Who holds the proceeds when they arrive, and how quickly are they distributed?

How investors apply the term

Investors usually apply this term by tying the definition back to the controlling documents and then asking which cash flows, rights, restrictions, or valuation assumptions it changes. A useful review looks at the term alongside fees, leverage, liquidity, reporting frequency, and manager discretion rather than treating it as a standalone concept.

The practical diligence test is simple: identify who benefits if the assumption is wrong, who has control when conditions change, and what evidence the investor receives after closing. Terms that cannot be reconciled to documents, cash movements, and monitoring data should be treated as marketing shorthand until proven otherwise.

Frequently asked questions

Who gets paid first when a funded case settles?: Usually the funder, after any costs or fees that rank ahead of it. Most agreements return the funder's deployed capital before the claimant receives anything, then pay the funder's return, then the claimant. Some give the claimant a minimum first: AmBase's 2019 amendment paid the company the first $7.5 million of proceeds before its funder's 25% share of the excess. The order matters most when the recovery is small.
What does a real priority order look like?: Zerify's August 2024 agreement with SIM Tech Licensing, filed as an 8-K exhibit, applies proceeds 'first' to approved advance costs plus 15% a year, 'second' to amounts owed under any litigation funding agreement, and 'third' 40% of the remainder to SIM, with the balance to the company. Proceeds are paid into outside counsel's account under an 'irrevocable pay proceeds agreement' and distributed within ten business days.
How do several funders share?: By ranking or pari passu. AmBase's 2026 agreement with its chief executive and a converted agreement with BARC Investments rank pari passu, sharing equally by amount, after a 25% slice of proceeds above $7.5 million owed to the chief executive under the 2019 amendment. Later funders often require to rank ahead of earlier ones, which pushes earlier money and the claimant further down.
Where do lenders and security interests fit?: Security can put a funder ahead of other creditors on the proceeds. Silver Bull granted Bench Walk a security interest in the claim, its proceeds and rights under any appeal bond. Williams Industrial's lender agreement describes a separate Security Agreement with its capital providers and requires their UCC filings to be terminated when the funding ends, so the lender and the funders had to agree on who ranked where.
What happens when the settlement is small?: Lower-ranking parties absorb the shortfall, and the claimant can receive nothing. In the worked example below, a $30 million settlement leaves the claimant $11 million, while a $15 million settlement leaves it nothing after success fees, a deferred premium and the funder. That is why claimants negotiate minimums or caps, and why a funder's priority can make it reluctant to see a low settlement and the claimant eager for one.
Does the order change over time?: It can. AmBase's 2026 agreement changes the funder's entitlement by date: the fund amount plus 50% if proceeds arrive by September 30, 2026, plus 1.0x within 12 months of funding, plus 1.5x within 24 months and plus 1.8x after that. Burford's 10-K says percentage entitlements can 'increase or decrease over time or may depend on the size of the total resolution amount.'