Mitigating Risk - Maximising Reward
The litigation funding market continues to evolve at a rapid pace, with new entrants and products launching on an almost monthly basis. However, it would be a mistake to assume that an expansion of this relatively immature market automatically means that task of obtaining funding is made any easier for claimants or their lawyers.
With over 20 litigation funders in the UK alone and significantly more around the globe, there are many potential options to consider. The challenge, however, remains in navigating the individual process and risk appetite for each. Obtaining funding remains a complex and time-consuming process. To increase the chances of success and to shorten the period of deliberation, it is crucial to be well prepared.
As well as maintaining an extensive network of relationships with all of the key players in the funding market, Factor Risk Management’s management team have first-hand experience of every aspect of the funding process. Having originated, structured and executed funding transactions with over $1bn of claimed damages, claimants and lawyers benefit from a unique and unparalleled level of experience and expertise.
Before approaching the market, we take the time to understand your requirements and assist you in preparing a proposal that is the most likely to succeed. We understand what funders look for and what are the likely primary areas of focus. Using us, allows you to leverage our expertise and experience to ensure that the process is carried out with optimum efficiency and competitive terms are secured.
What is litigation funding?
Litigation funding or litigation finance is typically categorised as the use of third – party capital, ordinarily provided on a non-recourse and unsecured basis, for the specific purpose of paying some or all of the legal costs to pursue a claim. In return for providing financing, the litigation funder would be entitled to a proportion of the claimant’s damages in the event of successful settlement or award at trial. Should the claim be unsuccessful, the funder would lose their investment.
Why use litigation funding?
Risk management tool
the ability to limit a claimant’s downside risk as the financial risk is transferred from the claimant to the funder.
for many claimants, particularly corporates, the significant legal spend to pursue a claim can cause a drain on finances as well as presenting an opportunity cost, as vital cash resources are diverted away from revenue generating activities. In addition, by avoiding the use of traditional debt facilities, the claimant avoids further indebtedness.
Positive accounting recognition
Litigation is notoriously expensive. Those costs are recognised as an expense on a company’s profit and loss account, thereby reducing its operating profits for as many years as the litigation continues. This can have a negative effect on EBITDA, thereby reducing the company value. By using funding, legal costs can be taken ‘off balance’ sheet, thereby ensuring that a company’s operating profit is not unnecessarily reduced and the company accounts will show a more accurate position of the company value.
An additional layer of diligence and oversight
Funders only invest in cases that they consider are likely to succeed. After all, there is no money to be made backing losers. Most funders will also have significant in-house legal and financial expertise. Those skills can be useful to a potential claimant as they will have an interested, but dispassionate party who will stress-test the strength of your case and provide useful input over the life of a case.
What kind of legal costs can litigation funding be used for?
Funding is typically used to pay legal fees (solicitor and barrister), disbursements (such as court, tribunal fees or expert fees) and any enforcement costs. However, as the market develops, the availability and use of litigation finance is becoming more akin to traditional corporate finance with an increasing number of funders willing to provide capital for a variety of other uses including financing expansion or providing operating capital.
What type of cases can litigation funding be used for?
There is no limit on the types of cases that funding can be used for. Most traditional funders however, will ask that the claim is of a commercial nature (not personal injury), that there is a clear route to recovery, and that there is a sufficient ratio of costs to damages.
How much do funders charge?
Funders predominantly charge based on a percentage of the damages recovered and/or a multiple of the funds committed/deployed. The multiples tend to range from 1-5x depending on the return duration and risk profile of the case. There are various other permutations to these structures, but these remain the most used.
Specific funding products and service that we can access:
- Portfolio funding
Where funding can be cross collateralised against a group of cases. This allows for diversification thereby reducing the risk profile for a funder which means lower pricing overall for the claimant/s. This can also be combined with WIP/DBA insurance products where a law firm has multiple cases that can be combined.
- Monetisation of claims and awards
In certain instances, funders may be willing to purchase claims outright and pursue them in their own right. The Claimant benefits from immediate payment and potentially a further payment upon case conclusion.
- Judgment/Award enforcement
Funding can be obtained when funds are exhausted following successful litigation but further monies are required to recover damages. It will be necessary to provide an enforcement strategy with evidence and a budget.
- Early stage finance
Where there is potentially a good claim that requires a discrete item, such as counsel’s advice or an expert report, to enable full funding to be sought, limited seed financing can be sought to enable the claim to progress.
- Assignment of officeholder and company debt claims
Funding is available to assign claims outright from insolvency practitioners and creditors.
Sums between £10,000 to £10M + are available to pay for legal costs and ongoing disbursements to assist you in unlocking the true value of your claim.
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