CFOs and GCs of Fortune 500 and FTSE350 companies are increasingly turning to legal finance for novel solutions to age-old business problems.
As of 2022, corporate clients represented 57% of Burford’s current commitments—up from 30% in 2016. Although the use of legal finance by businesses has increased, CFOs and even some GCs still seek to be better educated about financing their companies’ litigation and arbitration assets. Below, we take five minutes to address four common business challenges faced by corporate leadership and how legal finance can help to solve them.
Managing the cost of pursuing recoveries
Cost remains one of the most persistent obstacles businesses face when pursuing meritorious claims, and many may simply abandon meritorious claims due to cost. In fact, three of five in-house lawyers interviewed say that their companies have neglected to pursue meritorious recoveries in the prior year, with the cost of pursuing claims, judgments and awards a deciding factor. This suggests that many companies would benefit from pursuing recoveries with a cost- and risk-sharing partner.
Fees and expenses financing solves this problem. Whether a legal department has one claim or many, fees and expenses financing—an arrangement in which a finance provider assumes the costs of paying lawyers and legal expenses in exchange for a portion of the recovery if the claim is successful—enables GCs to pursue claims based on merits and value to the organization, without the burden of additional cost or risk.
Enhancing liquidity
3 out of 5 companies neglected to pursue litigation due to cost in the previous year
Pending claims and awards often represent very significant albeit highly illiquid value. “Monetization”—an increasingly common legal finance product for businesses—gives CFOs and GCs a tool to unlock capital to reinvest in the legal department and for other business purposes.
Monetization accelerates the value of a portion of a pending claim or an uncollected judgment or award on a non-recourse basis, benefiting the balance sheet by adding immediate liquidity. This brings money into the business and allows companies to realize the value of claims, judgments or awards without waiting for legal processes to resolve. As a result, financing transforms claims from burdensome expenses to assets with upside potential.
Eliminating downside risk and increasing budget certainty
Litigation and arbitration add risk and uncertainty: In addition to the risk of loss, businesses face uncertain cash flows (both outgoing costs and incoming recoveries) and timing delays. This uncertainty can be eliminated by monetization and fees and expenses financing.
Monetization enables GCs and CFOs to lock in a guaranteed minimum return from pending claims and awards regardless of the outcome. Cash flows can be timed and allocated as needed to enhance larger budget uncertainties and needs—for example, to offset defense costs or to set a baseline for recoveries.
Alternatively, fees and expenses financing shifts costs from the company’s P&L to the finance provider. In either scenario, if underlying matters lose, Burford assumes the downside risk. Legal finance is not a loan but rather non-recourse financing that is contingent on a successful outcome.
An especially powerful solution to businesses with multiple claims are portfolio-based financing structures in which a legal finance capital facility is tied to multiple litigations, including claims and defense matters. Portfolio structures can help GCs and CFOs better manage legal department costs and cash flows.
Burford’s value-add for clients
Burford helps CFOs and GCs proactively identify and optimize the value of their corporate litigation assets. Burford has reviewed 12,000 matters since its founding—and has built a commercial disputes data set not available elsewhere. Our team knows how to find and optimize value, turning what would otherwise be illiquid assets or a drain on corporate budgets into cash for the business—improving earning, strengthening the balance sheet and enhancing the value of a company’s legal portfolio.
Read our case studies to see how we help GCs and CFOs achieve their business goals.
