In the blink of an eye, the world has changed because of COVID-19. While the primary challenge we all face is health-related, the adverse economic impact has been swift, and with precipitous market declines and bad news coming from the world’s largest economies, there is little doubt a recession is coming. Given this reality, companies and law firms will face significant economic headwinds in the year ahead, including constrained access to capital and reduced legal budgets.
As the world’s leading provider of legal finance, Burford stands ready to be a partner to in-house and law firm lawyers in this uncertain economic climate. We acted early to transition our worldwide team to working remotely as the threat of COVID-19 has grown, and we have done so without a hitch. We are keenly aware of the challenges our in-house and law firm clients face as their businesses are impacted by a recession that now appears likely, and we are ready to help our clients address those challenges:
- Help in-house lawyers offload expenses: In a recession, GCs are even less happy about the ever-growing fees and expenses involved in litigating and arbitrating meritorious claims —so they welcome legal finance as a tool to offload these costs. But when times are bad, more deals go bad—so legal departments are faced with the problem of more damages (and meritorious affirmative claims) but fewer dollars available to seek redress for those damages. Resolving this challenge—both through financing strong individual claims and through capital facilities tied to multiple claims and defense matters—has been the foundation of our business since we were founded in 2009, in the wake of the last global downturn.
- Help corporations generate immediate cash: Among the major trends ahead is an increased use of monetization by companies—including very large ones, such as the Fortune 100 company for which Burford created a $75 million monetization deal in 2019. As distinct from using legal finance to pay legal fees and expenses incrementally as a matter progresses, companies now use legal finance to monetize a portion of a pending claim, judgment or award into cash, with a legal finance provider advancing non-recourse capital that would otherwise be unavailable until that claim, judgment or award is fully adjudicated and enforced. This provides an immediate influx of cash and helps businesses in three ways: First, generate cash now; second, de-risk their litigation portfolios; and third, achieve greater control over the timing of their recoveries. Even companies with ample cash to pay lawyers’ fees and expenses often prefer immediate liquidity over waiting potentially years to unlock the captive value of claims, judgments and awards—especially given the probability of declining business revenues and the prospect of increased capital constraints.
- Help law firms serve clients without interruption: Law firms can also use legal finance to hedge against the impact of a downturn on their clients—most immediately the prospect of clients that become unable or unwilling to pay their fees. In its most basic form legal finance provides firms the ability to continue working with clients on meritorious claims, even if reduced revenues or insolvency limit clients’ ability to pay legal fees. We expect that there will be no reduction in strong, meritorious claims—indeed we expect an increase in claims tied to contractual and other business disputes arising from the pandemic and the downturn—and law firms will want to be ready to represent clients with strong claims regardless of their ability to pay. Our very first matter after our 2009 founding involved a large New York law firm with an hourly billing model introducing us to a client that used Burford’s capital to continue retaining and using the firm on an important affirmative claim when the client’s capacity to pay became constrained. Then, and now, Burford allows even the biggest of law firms to differentiate themselves and serve their important clients without interruption.
- Help law firms create demand and hedge against reduced client budgets: In the last downturn, many law firms suffered when clients cut corporate work and they were too slow or unable to offer other services to compensate for this loss of revenue. In the last year, potentially in anticipation of looming client budget cuts in the wake of a probable downturn, some firms have opted to invest in building highly profitable business disputes practices for plaintiffs and taking those matters on contingency. Legal finance in the form of a portfolio-based capital facility—in other words, a pool of capital tied to a pool of existing or future matters—means that these firms can take on a significantly greater number of cases without increasing risk to the firm. Now, rather than waiting to react to client budget cuts, firms are being proactive. Law firms are diversifying their practices, using legal finance to share risk as they do so. Law firms that do not have a legal finance process and partner in place will be more limited—especially in a downturn—in their ability to compete for profitable new business and hedge against the client budget cuts to come.
Burford stands ready to be a partner to our in-house and law firm clients in good times and bad. We’ve spent the last decade building the industry’s best team and most professional process. We’re here to help.