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recent Norton Rose research surveying more than 250 general counsel and in-house litigation leaders reveals that the median number of suits brought against those surveyed rose to six in 2021 from four in 2020. To meet the demand, in-house litigation spend is shifting back to outside counsel after a slight decline in 2020, with outside law firm fees accounting for 73% of in-house spend. Faced with rising expenses enterprise-wide, companies war of unpredictable legal budgets should welcome every tool available to manage risk and cost. Legal finance offers companies a powerful means of offsetting a surge in legal spend.
GCs and their CFO colleagues tend to concentrate on covering the costs of defending suits brought against them, an unavoidable and necessary part of doing business. Yet many companies have unpursued affirmative claims, judgments and awards that represent considerable potential value to the business in the form of uncollected damages. Regrettably, GCs and CFOs may balk at the significant fees and expenses required to pursue such matters and forgo pursuing affirmative litigation altogether rather than spend these funds and risk an expensive loss. In forgoing meritorious claims due to cost, CFOs and GCs are leaving money on the table—and according to research by Burford, they may miss out on significant sums. For example, 75% of large company financial officers surveyed reported that their companies had unenforced judgments worth $20–$100 million.
Contrary to common misperceptions, affirmative litigation need not post a cost drain or massive risk to a corporation. With legal finance (also known as third-party funding, litigation funding and litigation finance), companies can pursue valuable affirmative litigation claims without having to bear the burden of outside firms’ fees and expenses. Through this financing solution, the litigation funder provides non-recourse capital that may be used to pay case-related legal fees and expenses for one claim or multiple matters. The capital also enables companies to pursue meritorious affirmative litigation while removing the cost of doing so from its P&L. Fees and expenses financing further allows a company to work with its preferred outside counsel regardless of the firm’s willingness to work on a contingency fee basis.
Fees and expenses financing is just one legal finance solution. Burford also routinely works with large companies to advance a portion of expected damages—a solution known as monetization. By accelerating the timing of cash flows associated with high-value claims, monetization provides immediate liquidity that can be used to offset other litigation costs or for entirely unrelated business needs.
Case study: Company pursued a valuable claim while preserving operating capital
An industrial engineering company was involved in a high-value, multi-year dispute over a supplier’s alleged professional malpractice. The dispute led to lost customers and business, significant reputational damage and reduced cash flow and liquidity. Following an unsuccessful mediation attempt, the company initiated an arbitration and stood to recover damages valued in the low nine figures but also needed to preserve its budget for use in day-to-day operations rather than for out-of-pocket legal fees and expenses .
Burford provided almost $6 million to cover case-related fees and expenses. Further, at the company’s request, we introduced several potential replacement law firms when original counsel withdrew after filing the arbitration. Burford’s investment did not add to the company’s debt load because it would be paid back only if and when the company achieved a successful outcome in the dispute. The company would keep any excess funds recovered after paying Burford’s return. If the case was unsuccessful, the company would owe nothing to Burford or its lawyers—eliminating the cost and risk of the litigation.
Burford’s $6 million of non-recourse capital guaranteed that the company could assert its right for relief under the contract with its supplier without having to redirect precious operating cash to outside lawyers. By pursuing a critical recovery at no cost, the company kept its focus on continuing to rebuild its business while waiting for the matter to resolve.
Key benefits of fees & expenses financing
- Provide non-recourse funding of legal fees and expenses at any stage
- Enable clients to work with firm of choice
- Create a “hybrid contingency” for firms under pressure for alternative or reduced fees
- De-risk pending high-value claims
As spend on outside counsel rises, companies need not forgo valuable claims, compromise on counsel or pay fees and expenses out of pocket. With a litigation finance partner, companies can pursue meritorious claims that add value to the business—a welcome change for corporate legal departments.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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