Since Burford Capital’s founding in 2009, legal finance has become an increasingly useful tool for law firms and clients seeking innovative means of navigating the expensive, uncertain world of commercial litigation and arbitration.
Burford’s expertise, transparency and substantial pool of capital have made us a trusted partner for financing litigation, and, consequently, a resource for those venturing into the world of legal finance. Here, we address some of the most common questions corporates have about legal finance and third-party funders.
Table of contents
- What is legal finance?
- How can my company benefit from legal finance?
- How can legal finance improve my company’s balance sheets?
- How does portfolio financing work?
- What role does the funder play?
- How does Burford assess and diligence potential investments?
- What should clients look for in a funder?
- What are some other ways that my company can benefit from legal finance?
- What makes Burford the leading global provider of legal finance?
1. What is legal finance?
Legal finance leverages the asset value of commercial litigation or arbitration to secure financing for litigation or other business purposes. Frequently, legal finance is used to fund the costs and fees associated with litigation and arbitration matters in exchange for a portion of the ultimate award or settlement. In this manner, legal finance operates as a synthetic contingency that bridges the gap between client and firm.
Burford typically provides financing on a non-recourse basis, meaning that we absorb downside risk and only recoup our investment if the underlying matter is successful. By accepting third-party financing, lawyers and clients are better able to pursue meritorious legal claims without worrying about adding cost or risk to the company.
Read here for more information about litigation finance.
2. How can my company benefit from legal finance?
Uncertainty and ever-increasing costs are prompting corporates to find creative solutions to manage legal costs. Litigation finance has proven itself a valuable tool for corporates pursuing meritorious high-value cases, as it can be used to:
- Fund legal fees or expenses
- Finance single matters or portfolios of litigation—which can include as few as two matters or a company’s entire litigation portfolio
- Engage firms of choice
- Manage cost and risk exposure
- Monetize litigation assets at the beginning of a case or after judgment or appeal
- Finance, sell or collect uncollected judgments
- Trace assets and enforce judgments against litigation debtors
3. How can legal finance improve my company’s balance sheets?
Without external financing, legal expenses are immediately recorded as expenses that reduce a company’s profits and earnings. Even litigation recoveries lack benefit because they are recorded “below the line” as non-recurring or extraordinary items that do not mitigate the dip in EBITDA caused by legal fees. These outcomes are particularly damaging for public companies, those seeking to go public, or those hoping to secure financing.
Legal finance can help corporates to avoid these situations by moving costs off corporate balance sheets, allowing them to maintain normal operating expenses and devote capital to other functions.
4. How does portfolio financing work?
Burford provides flexible, non-recourse financing for portfolios comprising multiple matters, allowing companies to spread capital across defense and claimant cases. Corporates can also use portfolio financing to fund other business matters.
The primary advantage of portfolio finance is that it reduces overall risk—enabling companies to accept more contingent or conditional matters without increasing total exposure—while enhancing competitiveness.
Burford leads the industry in portfolio finance. We currently have a $45 million investment with an FTSE 20 company to fund their litigation portfolio; a $100 million law firm investment across a broad portfolio of complex commercial litigation; and a $50 million law firm investment for a portfolio of arbitrations.
Download our brochure to learn more about how portfolio finance can benefit your company.
5. What role does the funder play?
Burford is a passive provider of corporate finance, which means that we have no impact on lawyer-client relationships or obligations, nor do we control litigation strategy or settlement decisions. We do, however, require regular reporting on significant case developments.
Since confidentiality is paramount to Burford’s business and our role as a funder, we are vigilant in managing diligence to avoid risking waivers of protected communications. Case law precedent has further confirmed that communications between funders and clients falls under work product protection.
6. How does Burford assess and diligence potential investments?
Burford funds large commercial cases with strong merits and a substantial ratio of investment to realistic settlement value. Given that our funding is non-recourse—meaning we only receive a return on our investment following a successful resolution—we conduct a rigorous assessment of each case prior to it entering our formal underwriting process. During this process, Burford determines if the matter meets our basic investment criteria for financing, including jurisdiction, stage of development of the claim and the size of the investment.
Cases that fulfill our initial requirements are then subject to a diligence review and an economic analysis. In the former, cases are reviewed on their merits, counsel, potential damages, counterparty and enforceability. Our economic analysis then looks at budget, lawyer risk-sharing, damages and the ratio of investment to damages.
While Burford considers most commercial litigation and arbitration matters, not all are suitable for funding. To learn more about the criteria that the best candidates for funding satisfy, click here.
7. What should clients look for in a funder?
Given the duration and cost of commercial litigation and arbitration, it is crucial for corporate teams and their firms to identify the right finance partner. A key concern is whether the funder will have sufficient capital to commit without time constraints or other limitations.
Some questions that clients should ask in order to understand a funder’s historical track record and financial capacity are as follows:
- How much money has the funder made? Across how many and what kind of investments? Over what period?
- How much cash does it have invested in comparable litigation today?
- How much available capital does the funder have to invest?
- How reliable are their sources of capital?
- What happens if they do not provide capital when desired?
Click here to learn more about selecting the proper capital provider.
8. What are some other ways that my company can benefit from legal finance?
Legal finance can be utilized in many innovative ways besides funding commercial litigation and arbitration. Burford is able to add value beyond capital in the following capacities:
- Recovering outstanding judgments through our asset recovery team, which uses data-driven analysis and human intelligence to enforce unpaid judgments and awards.
- Helping claimants and law firms attain post-settlement monetization by providing capital that can be immediately recognized as revenue.
- De-risking pending claims and insuring against legal fees and exposure in cost-shifting jurisdictions.
9. What makes Burford the leading global provider of legal finance?
With three former Fortune 50 GCs on our team, Burford leads innovation in litigation finance for corporate legal teams. We have the deepest bench in legal finance, boasting a team of over 90 veterans of leading law firms and financial institutions. All of our underwriting is conducted in-house, so we can be quick, precise and thoughtful in responding to clients’ needs.
Our nearly decade-long track record as the industry leader has set standards that others now follow. And with over $3 billion already invested in the legal market—and $1.7 billion invested in 2017 alone—Burford’s capacity and reputation are unmatched.