Quarterly

Monetizations and assignments are used by businesses throughout Europe to de-risk and advance the potential value of pending claims and awards.

Enforcing arbitration awards against either a commercial party or a sovereign state can be challenging. The divergent approaches taken in different jurisdictions can prove difficult to navigate, and many jurisdictions lack publicly available corporate information regarding shareholders and ultimate beneficial owners of companies. The idiosyncrasies to enforcing arbitration awards against sovereign states are well-documented, but commercial award debtors also frequently frustrate recovery, for example, by hiding assets in complex corporate structures or pleading poverty when it comes time to enforce an award.

Given these challenges, businesses are understandably reluctant to spend more from the company’s coffers to enforce an award after an expensive and drawn-out arbitration process, particularly in the current economic climate. As a result, some award creditors choose to forgo enforcing valuable awards altogether—because internal business assessments determine that working capital is better spent on supporting operations and investing in growth.

There are, however, alternatives to leaving money on the table. Arbitral claim and award monetizations and assignments are increasingly leveraged by European businesses to contain the risks of pursuing lengthy disputes and to reduce enforcement and set aside risk. Both assignments and monetizations put liquidity in the hands of the claimant but are different in practice. In this article we explore the options available to companies looking to advance the value of their pending claims and awards in exchange for significant upfront liquidity.

Option #1: Companies can assign their arbitral awards

An arbitral award is a company asset therefore, businesses are free to “assign” or transfer all or partial ownership of that award in the same way they would other kinds of assets.

Businesses can assign an arbitral award of third parties (including, effectively transferring the cost and time burden of enforcing it). According to one Queen Mary study, as early as in 2008 almost a fifth of interviewed corporations realized value from their claims and awards through an assignment or sale.[1] Burford held a webcast on the topic of the growing trend of award assignments in November 2022 with senior lawyers from Airbus and Freshfields,[2] for a more detailed discussion of arbitral award assignment Freshfields practice note for Thompson Reuters provides more.[3]

Option #2: Companies can monetize pending claims and awards

Alternatively, businesses can use legal finance to “monetize” or accelerate a portion of an expected recovery from both their claims and awards. As its name implies, monetization is the conversion of a portion of a pending claim or a final award into cash, with a legal finance provider essentially advancing capital that would otherwise be captive until the resolution and payment of the claim or award in question. However, unlike an assignment, the legal finance provider does not control enforcement or settlement. The outside capital provided from the monetization can be used as working capital by the claimant, including to invest back into the claimant’s business.

Why companies are monetizing or assigning their arbitration claims and awards

Assigning or monetizing an award relieves the time and cost burden of enforcement and any risk of set aside for the claimant. It provides immediate cash at the time of assignment or monetization without having to incur further legal spend, but also potentially allows the award creditor to retain a stake in the future recovery. It also reduces exposure to challenges to the award, whether in the form of a reduction in damages or a reversal or set aside of an award.

This immediate liquidity is viewed as an increasingly important benefit of legal finance, particularly in an uncertain economic environment. As one Corporate Counsel for a large food and beverage corporation said in a recent survey of GCs:[4] “I have explored the use of legal finance and would do so again. The liquidity aspect is a big needle-mover for many companies, especially because it could provoke a settlement earlier, bring in money earlier, and de-risks litigation.”

Separately, at the inaugural annual International Legal Finance Association (ILFA) conference in New York in October of last year, Blase Iaconelli, Vice President and Assistant General Counsel of Aramark (a US food service provider), explained the cash flow and timing benefits legal finance can provide when claims are monetized: “We've been pretty successful in a couple [of funded] actions and what really drove the decision making in large part was: What are our financial objectives for the year? We're a public company, there are numbers that we need to hit, and can this fill a hole? Is it that we want money now? Or maybe we want it to come in another fiscal year and being able to use litigation finance to help structure when that cash flow hits is viewed not just as a way of getting money in the door, but also getting a more consistent stream of cash flow over time.”

Case study: Global manufacturer assigns arbitral awards to avoid enforcement risk and generate immediate liquidity

A subsidiary to a well-known global manufacturer had two outstanding arbitration awards with a cumulative value of over $100 million arising from a breach of contract matter. The company faced years of complex, high-cost multi-jurisdictional enforcement proceedings across multiple jurisdictions to unlock the latent value of the awards, when it instead preferred to focus on operating its business.

The company assigned the awards to Burford at a discount, while maintaining upside. Burford took on the full risk of recovery. Burford’s enforcement strategy implemented by Burford’s own in-house asset recovery specialists in combination with external legal counsel led to a high value settlement providing significant additional returns to the company. The enforcement involved court proceedings in multiple jurisdictions across the Middle East, UK, US and Africa.

After partnering with Burford, the client had access to immediate liquidity to use for general business operations, allowing the company to focus its efforts on the growth and maintenance of the business and outsource the day-to-day management of the collection to specialists in the field.

About the authors

Philipp Leibfried

Head of Europe

+44 (0)20 3814 3692

pleibfried@burfordcapital.com

Philipp Liebfried is Head of Europe with responsibility for leading Burford's continental European business. He previously served as Burford's UK/European Corporate Counsel in London for more than 5 years. Prior to joining Burford, he spent nearly a decade at Freshfields in London.

Jörn Eschment

Director

+41 415 620 384

jeschment@burfordcapital.com

Jörn Eschment is a Director with responsibility for Burford’s litigation finance activities in Europe and Asia. Dr. Eschment joined Burford in 2018 and leads its investment arm in Germany, Austria and Switzerland and specializes in assessing, underwriting and managing arbitration, antitrust and consumer mass litigation matters.