In 2022, creditors with unpaid judgments may continue to face severe resource constraints as well as obstacles in recovering monies owed to them, as recalcitrant debtors continue to evade enforcement. As courts reopen and countries adopt new regulations, asset recovery expertise will play a key role in creditors’ enforcement strategies.
Covid-19 continued to play a central role in debt and judgment enforcement last year as courts across the world grappled with both the backlog of cases and an increase in litigation and arbitration. While law firms saw a sizable jump in revenue as legal demand hit record-breaking levels1 in 2021, many businesses struggled to regain footing amid changing restrictions, supply chain shortages and loss of revenue. The asset recovery business continued to meet the evolving demands of creditors seeking to enforce judgments acquired prior to or during the pandemic.
Navigating sovereign immunity will prove to be a major challenge for creditors
The pandemic drove a detrimental accumulation of debt across the globe. In 2020, global debt rose by 30 percentage points of GDP2, the largest single-year increase since 1970. This increase stretched across most countries and included both private and sovereign debt, the latter being much more difficult to resolve. With private debt, creditors may expect the process of recovering debts from individuals and companies—though costly and time-consuming—to be achievable. However, creditors seeking to enforce judgments against sovereign debtors face a seemingly unsurmountable barrier: Sovereign immunity.
By definition, sovereign immunity, a legal doctrine that grants sovereigns and states immunity from civil suits or criminal prosecution, represents the greatest challenge for claimants in their enforcement efforts against sovereign debtors. Covid-19 and the ensuing downturn has further exacerbated enforcement by creating significant economic concerns for many countries, impacting their ability to pay their debts voluntarily at the same levels as pre-pandemic; leading to a greater desire for these states to litigate using defensive doctrines like sovereign immunity to increase enforcement risk for claimants; thereby driving down any eventual settlement.
Several cases have been brought to address immunity principles. Most recently, in In re Venoco, LLC3, the Third Circuit of the US Court of Appeals rejected the State of California’s motion to dismiss based on sovereign immunity. While it is uncertain what effect, if any, the decision will have on the overall limitations of sovereign immunity, one thing remains certain: Sovereign debtors continue to use immunity as a defensive measure, and claimants face increasingly complex routes to translate judgment debts into tangible capital.
Global regulations are evolving the asset recovery landscape
In an attempt to make the recovery process more transparent and easier to navigate, several countries have adopted more creditor-friendly regulations, increasing claimants’ scope and accessibility to recover capital from recalcitrant debtors regardless of where assets have been hidden across the globe. In 2021, mutual enforcement of arbitration awards in both China and the Hong Kong Special Administrative Region (HKSAR) came into effect, allowing parties to commence enforcement proceedings in both jurisdictions simultaneously. The UAE similarly declared a bi-lateral treaty5, allowing for the faster enforcement of UAE court judgments in India and vice versa. The country also clarified the scope of payment order claims6, a mechanism for immediate ex parte judgments, signaling the importance of expedited judgment procedures in the region.
Evolving global regulations will create more avenues for creditors to extract hidden legal assets, provided that they are able to navigate the complex procedures, rules and regulations of local courts.
Law firms are recognizing the necessity of asset recovery
As multijurisdictional concealed-asset recovery becomes more complicated, clients looking to be made whole will increasingly turn to asset recovery experts. While conserving resources and maintaining stability were understandably the main goals for many businesses early in the pandemic, collecting on unenforced judgments and awards now can provide a greater pool of capital to businesses facing economic constraints. Collecting on previously unenforced judgments and awards can greatly affect a business’s chance of thriving post-pandemic. Indeed, a majority of companies in 2020 had unenforced awards valued at $20 million or higher.
The global asset recovery business has also grown to meet evolving client demands; what used to be a smaller function or niche offering has now developed into a discrete line of business. In 2021, many new players entered the market, and several law firms formed in-house asset recovery teams to help clients begin the post-judgment enforcement process.
Legal finance providers that have dedicated asset recovery teams play a crucial role in judgment enforcement in two ways. First, external providers fill in the gap for law firms with asset recovery departments by monetizing claims (advancing a portion of the claim upfront) on contingent interest. Second, asset recovery specialists can provide information that can help ensure a successful recovery, including tracing assets, investigating and procuring evidence and removing obstacles. In a perfect partnership, the external specialists can combine years of experience in the field with a law firm’s knowledge of the case to collaborate and produce a successful outcome.
With the pandemic continuing, creditors can expect continued impediments to judgment and award enforcement; many may face delays as courts in various countries reopen at their own pace. Creditors can also anticipate obstacles to locating assets overseas, as debtors conceal them in progressively creative ways. However, as the asset recovery business continues to expand, claimants will be able to take advantage of new tools and solutions to include in debt enforcement strategies.
Daniel Hall is a Director and co-lead of Burford’s global corporate intelligence, asset tracing and enforcement business. After leaving the law, he worked in the investigative sector and was a partner at a leading global risk-management consultancy. He spent ten years investigating fraud and financial crime before co-founding Focus Intelligence Ltd.
Michael Redman is a Director and co-leads Burford’s global corporate intelligence, asset tracing and enforcement business. He has worked in complex asset recovery and enforcement for well over a decade, holding senior positions in both Moscow and London before co-founding Focus Intelligence Ltd, a leading asset recovery advisory boutique acquired by Burford in 2015.
 Person and Lucy Leach, “Global trends in legal 2021: Growth opportunities are there, but law firms will have to work for them,” Thomson Reuters, 9 December 2021, available at: https://www.reuters.com/legal/legalindustry/global-trends-legal-2021-growth-opportunities-are-there-law-firms-will-have-work-2021-12-09/.
 M. Ayhan Kose et al., “Debt tsunami of the pandemic,” Brookings, 17 December 2021, available at: https://www.brookings.edu/blog/future-development/2021/12/17/debt-tsunami-of-the-pandemic/.
 “The Third Circuit seeks to clarify sovereign immunity in bankruptcy,” JD Supra, 24 June 2021, available at: https://www.jdsupra.com/legalnews/the-third-circuit-seeks-to-clarify-3674242/.
 Karah Howard, “China-Hong Kong arbitration mutual enforcement agreement now in force,” Pinsent Masons, 26 May 2021, available at: https://www.pinsentmasons.com/out-law/news/china-hong-kong-arbitration-mutual-enforcement-agreement-in-force.
 “2020 Declaration—Enforcement of UAE judgments in India”, Reed Smith Client Alerts, available at: https://www.reedsmith.com/en/perspectives/2020/01/2020-declaration-enforcement-of-uae-judgments-in-india.
 Hannah Howlett, “Expedited judgment gains traction in the UAE,” Burford Capital, 16 December 2021, available at: https://www.burfordcapital.com/insights/insights-container/expedited-judgment-gains-traction-in-the-uae/.
 2020 Legal Finance Report, available at: https://www.burfordcapital.com/insights/insights-container/2020-legal-finance-report/.