Litigation-funded claimants seeking damages from Moore Stephens were in 'cloud cuckoo-land', the judge in the case said this week, over a claim they are hoping to make for compound interest on their losses.

An attempt to strike out the claim was heard in court this week. The claim for compound losses could see the firm hit with a $78.9m (£39.7m) charge included in the $173m being sought.

‘The test for ordinary interest is discretionary, what you are seeking to claim are special damages. The sums paid out would have gone to reducing the indebtedness of the company – aren’t we in cloud cuckoo land here?’ Mr Justice Langley said.

Creditors for Stone & Rolls are pursuing the claim against the mid-tier firm with the help of IM Litigation Funding. The claim is the most high-profile claim so far to have been funded by a third party. The use of litigation funding is controversial, and has worried auditors in particular who are commonly regarded as deep pockets.

The claim is for £90m, just short of Moore Stephens’ turnover for 2006, £107m.

The case was heard on Tuesday, and a decision on whether or not to strike out the action is expected in the next few weeks.