Worked example

Addressing the negative accounting impact of litigation

Company challenge

A company is engaged in the manufacture, distribution and sale of widgets. Several of the company’s suppliers are acting as a cartel and have infringed on antitrust laws—so the considers whether to bring a competition claim against its suppliers.

Given the type of case and the jurisdiction, the company’s general counsel estimates the total cost to litigate the claim to be $5 million spread over the course of five years, with an estimated potential recovery of $70 million in damages. By all accounts, the company has a viable, NPV-positive legal claim with strong legal merits, substantiated damages, defendants that can afford the judgment awarded, and sufficient cost-to-damages ratio given the expected duration.

The company’s general counsel recommends moving forward with the claim. However, the legal budget is already under considerable stress, and the company also needs to consider the negative impact of litigation spending on the company’s P&L and market value.

Burford legal finance solution

The company’s external counsel recommends the company considers using litigation finance. The company contacts Burford explains its case, and receives the following proposal:

  • Burford will pay the entire cost of the $5 million budget
  • In exchange, the litigation finance provider receives its outlay back and 25% of the net proceeds from the lawsuit if successful

Legal finance impact

Litigation finance eliminates the need for the company to choose between sacrificing company profits or foregoing a valuable legal claim that will potentially bring a significant sum of cash into the business. Instead, the company can pursue a profit-generating legal claim while enabling the company to realign budgets so that more cash can be allocated to value-increasing activities—effectively turning the legal department from a cost center to a profit center.

This is a hypothetical example of one type of matter Burford routinely encounters and finances. It is meant to help demonstrate different use scenarios for our capital and the associated quantitative benefits.