Litigation Finance Shows No Sign of Slowing Due to COVID-19
Litigation finance is a business model designed to flourish during tough times. When courts are slow, postponements are omnipresent, and everyone is tightening their belts—the litigation funding community is enjoying boom times.
As an investment industry, litigation finance is a niche market with particular appeal for new investors. Anticipating future increases in litigation, many litigation funders are far busier than they’ve ever been.
Litigation Financing is countercyclical. When other industries are financially stressed, their willingness to pursue litigation increases. This opens up opportunities to strike deals that include interest for funds provided, and if a case is successful, a share of the recovery. Our network has indeed had an increase in inquiries since the pandemic outbreak hit Europe and America.
Some firms are looking to monetize in the middle of cases and are hoping to keep balance sheets as balanced as they can.
While many firms are focused on public equities, litigation finance is not dependent on the market. It’s largely a recession-proof business since the need to litigate cases is only expected to increase. Many law firms run the risk of becoming less financially stable, with billable hours dropping fast. Without large cash reserves, these firms are likely to turn to litigation funding to stay afloat.
Got Litigation Claims?
Don’t Forget to Monetize!
It cannot be denied that this is a time of stress, uncertainty, and delays. The legal field feels this more acutely than other industries, and it’s already showing in how cases are conducted. We all have a choice: react to what happens, or try to get ahead of it through diligent planning. One key factor in said planning comes in the form of monetization.
Monetization involves utilizing legal claims as collateral to gain working capital. If litigation is successful, the funder receives a share of the recovery. This might be calculated as a multiple of the monetized amount, a percentage of the total recovery amount, or some combination of the two.
Monetization funds are provided for the purpose of working capital. That means they can be used to pay legal fees, under specific conditions. Monetized funds can be used in conjunction with traditional funding, which allows lawyers to be compensated as sort of a hybrid-contingency platform. Coronavirus constraints may make this an attractive option for firms and counsel whose budgets are impacted.
Whenever there’s an affirmative legal claim, monetization can be employed, with a well-developed claim easily assessed and valued. Most litigation funders are savvy enough to know which common types of claim categories can be settled expeditiously. Experienced funders often know how to close out these monetization transactions within six months.
In addition to slowdowns in most courts, there are other factors impacting the closing of cases—like the inability or unwillingness to take remote depositions impacting discovery. With
that in mind, a firm experiencing budget constraints during COVID-19 would do well to consider monetization.