What are affirmative recovery programs and how do they work?
- Affirmative recoveries
What is an affirmative recovery program?
Affirmative recovery programs are formal efforts by a legal department to reduce costs and enhance liquidity for the business by pursuing recoveries, including through meritorious plaintiff-side litigation. Today, as many companies continue to look not only for cost savings but also for opportunities to add to the bottom line, affirmative recovery programs can empower legal departments to generate liquidity for the company and shift from cost centers to value drivers.
Research on how businesses are leveraging affirmative recovery programs, drawing on extensive one-on-one interviews with 52 general counsel, heads of litigation and other senior legal leaders, provides perspectives on and best practices for these programs. The research shows that while affirmative recovery programs are increasingly common, there remains opportunity to further leverage them.
Companies have untapped value in affirmative litigation
While two of three GCs interviewed say that their companies have an affirmative recovery program, only a few legal leaders say their programs are robust. This suggests that companies have an opportunity to do better. As one group GC of a privately held construction company put it: “The outcomes [of our affirmative recovery program] have exceeded our expectations, and our management is very confident in what we do. We are cutting edge in our approach and analysis. The challenge for us is to continue to improve.”
Seventy-four percent of senior in-house lawyers in a 2023 survey say they expect to see an increase in the volume of disputes over the next two years and some say as a result they expect to pursue affirmative claims more frequently but have concerns about the costs of doing so. As one senior corporate counsel of an industrial company explained: “Patent litigation [will increase] as we may proactively look to pursue enforcement actions that generate revenue. That said, no one wants to pay a lawyer for the two years it would take to bring a case to fruition and secure a recovery.”
Therefore, it is no surprise that some in-house lawyers also highlighted the availability of legal finance as an important factor in deciding whether to pursue litigation claims where cash flow is a concern.
Improve recovery programs with legal finance
A common barrier to the pursuit of meritorious claims and to the establishment of effective affirmative recovery programs is the concern that doing so will add cost and risk to the business. Even in situations where a company is likely to recoup significant recoveries in clearly meritorious matters, there is always a risk not only of outright loss but also of delay—and indeed, duration risk is a major factor in commercial disputes.
Legal finance can be a valuable tool for any company embarking on an affirmative recovery program. When a company works with a legal finance provider, the upfront legal fees and expenses are paid for by the funder on a non-recourse basis (meaning repayment is contingent upon a successful outcome, shifting downside risk of loss and duration risk to the funder). A company can also use legal finance to increase the company’s liquidity and control the timing of cash flows associated with recoveries, accelerating or “monetizing” an expected litigation or arbitration outcome based on the company’s preferred timing, not the timing of the litigation or arbitration.
In this manner, a financed affirmative recovery program can serve as both a P&L solution and a balance sheet solution, shifting upfront costs to a third party and eliminate the risk of loss, thus enabling legal departments to contribute to the bottom line without adding to expenses, and monetizing likely outcomes to create immediate liquidity in advance of a litigation recovery. Further, legal finance partners of Burford’s scale have third-party data and expertise that can help companies prioritize the matters that are most likely to yield the most positive results as quickly as possible.
A version of this article was published on Burford’s website on November 22, 2021, and was updated with new research data on February, 15, 2024.
