In January, we shared five ways law firms and business can leverage legal finance in 2017. We elaborate on these trends in legal finance in the following post and in posts to follow.
Burford often receives two questions: (1) How litigation finance can be used for defense matters; and (2) How Burford Capital can help grow firms’ litigation defense practices.
Law firms face intense competition to secure high-value defense clients. Even firms with institutional clients that routinely engage the firm on transactional matters find it difficult to cross-sell the firm’s litigation services to these same clients. When it comes to the clients’ litigation dockets (which typically consist of defense matters), most GCs immediately try to figure out how to avoid hiring your firm. The client first considers whether the defense can be handled by a cheaper firm, or, if faced with a bet-the-company case, whether your firm will take the case on a steep discount to hourly fees. For good reason: The cost of defending against litigation is high and unpredictable, damaging business-advancing endeavors, carefully planned budgets and the corporate P&L.
To grow a defense practice, therefore, law firms must change their clients’ mindsets. And that’s where litigation finance, specifically portfolio litigation finance, has a role to play.
In its simplest form, a litigation finance provider advances capital needed to pay lawyers’ fees and other costs related to a case. In return, the funder receives a negotiated return if and when the case is successful. In a defense context, this means the litigation finance firm advances costs to defend against weak claims in exchange for a multiplier or uplift based on predefined success.
Defense financing is ideally suited to the portfolio-based approach at which Burford is particularly adept—and therefore companies with significant litigation portfolios are ideal candidates for this form of financing.
How does it work? Most corporations have at least a few high-value affirmative litigation matters (large commercial disputes with counterparties, patent enforcement cases, financial products disputes, etc.). In essence, clients secure financing to pay for all or partial fees and expenses across a pool of cases—with these affirmative plaintiff cases offsetting the cost of their defense dockets.
Portfolio finance offers several key advantages to clients:
- Mitigate risk and cost across a range of cases, plaintiff and defense
- Provide consistency on budget
- Free up capital that can be reinvested back into the business
- Continue working with counsel of choice
- Provide working capital to the in-house legal department
Burford helped Grant Thornton, a leading professional services company, use portfolio financing for defensive matters. Insolvent estates often need to secure financing to manage and maximize the value of their claims, but complex insolvencies are not always good fits for simple case financing. Burford provided a £9 million facility backed by one insolvent estate’s litigation portfolio, enabling Grant Thornton to finance all costs of the bankruptcy estate, including defense costs, declaratory matters, administration costs, IP fees and expenses.
By talking to clients about using portfolio finance, firms have an opportunity to partner with and demonstrate value-add to their clients—and the GC has more reasons to send defense matters to the best firm, instead of making decisions aimed at avoiding your fees. As a result, cross-selling your litigation services to the clients your transactional attorneys see every day just got easier—and so did your ability to grow your practice based on your expertise, without the bottom-line damage caused by steep rate reductions.