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New research: Optimizing corporate litigation portfolios in a downturn

Since the 2020 downturn began, it has been clear that corporate legal departments urgently need to address both the challenge of managing litigation budgets and the opportunity to add value by unlocking legal assets. Burford’s co-COOs spoke to this in an April presentation.

Six months later, new research, based on a survey of nearly 500 in-house and law firm lawyers and one-on-one interviews with nearly 30, affirms that corporate legal teams are under pressure to manage their budgets: About 50% of in-house and law firm lawyers expect budgets and revenue to shrink in the next year. As one Fortune 500 head of litigation noted, “Covid has totally changed the way companies protect their budget.”

Yet Burford’s 2020 Legal Finance Report also reveals that companies have significant untapped legal assets—and that commercially minded GCs are finding ways to identify and optimize the value of these assets. Despite contending with reduced revenues and legal budgets, senior in-house leaders see opportunity to generate liquidity, create budget certainty and eliminate risk. As the Head of Litigation at a Global 500 food company told an interviewer, “When I raised [legal finance] with management, they loved the idea… I am being credited internally because management thinks the legal team is being creative by monetizing its claims.”

Protecting the legal department’s budget

The 2020 Legal Finance Report reveals that 52% of in-house lawyers say their company has chosen to forgo meritorious legal claims due to the impact of legal expenses on the bottom line. In other words, without a financing solution, companies are leaving money on the table—indeed they may be leaving millions on the table. According to the research, 70% of in-house lawyers say their companies have claims worth at least $20 million for which they could use financing and 36% have claims valued at $50 million or more.

Companies need not choose between pursuing meritorious claims and managing budgets. While some GCs may be inclined to scale back affirmative litigation programs even further in hopes of minimizing cost and risk to their companies, commercially minded GCs are reimagining their legal departments as profit centers by offloading cost and risk of litigation to a legal finance provider.

Unlocking claims with monetization

Pending claims often represent vast latent value to an organization, but they also carry a tremendous amount of uncertainty as to outcome and timing. With legal finance, companies can unlock the future value of a case or cases, which guarantees financial results on an accelerated basis and provides an immediate inflow of cash that companies can use for flexible business purposes. In this funding structure, a legal finance provider advances a portion of the potential award on a non-recourse basis—meaning repayment is contingent upon successful outcomes—thus removing any downside risk.

The 2020 Legal Finance Report reveals that savvy in-house lawyers recognize the opportunity to leverage previously illiquid assets and bring “money in” through the monetization of pending claims and awards. In fact, 75% of in-house lawyers cite the ability to generate liquidity as one of the most important benefits of legal finance.

For companies with high-value claims, there are several benefits to monetization:

  • Accelerate cash flow: Companies can secure cash now that is needed for the business, rather than waiting for matters to resolve.
  • Mitigate risk: Companies can reduce their exposure to the risk of loss, reduction of damages or reversal.
  • Control timing: Companies gain access to capital based on their preferred timeline—cash they can then invest in the business without delay.

Jumpstarting affirmative recovery programs

The downturn has accelerated companies’ search for value in their litigation departments. As part of that strategy, companies are keen to invest in affirmative recovery programs. According to the research, 61% of in-house lawyers are likely to pursue claims as plaintiffs through affirmative recovery programs to generate cash and offset legal costs in the downturn.

Legal finance is an important financial tool that enables companies to unlock millions tied up in litigation and provides a risk-free way to pursue those recovery programs. Whether a company wishes to initiate or improve a recovery program, engaging a legal finance provider shifts the risk off a company’s balance sheet and allows legal departments the opportunity to add quantifiable value to the business.

Corporate recovery programs can use legal finance to:

  • Offload cost of a recovery program: Capital is typically provided on a non-recourse basis with the funder paying litigation cost and/or accelerating a guaranteed financial result ahead of the resolution of the case in exchange for a portion of a future recovery
  • Prioritize high-value matters: Experts in valuing legal risk, Burford can help a company evaluate which matters are most likely to yield the highest returns as quickly as possible.
  • Work with counsel of choice: Companies are able to work with their firm of choice without budget concerns. This means companies aren’t forced to compromise representation for cost.
  • Add value without ceding control: Companies have access to a long-term partner that can provide practical insights throughout the lifecycle of a case. It is essential to note that control rightfully remains with the client.

Conclusion

While nearly 9 out of 10 (89%) of in-house lawyers cite managing legal risk as an important challenge facing their business, it is an inherently tough task given the difficulty of creating certainty around litigation costs and outcomes. By monetizing claims or investing in a recovery program, legal finance can help companies transform liabilities into revenue-generating assets.  

 

Download the 2020 Legal Finance Report