An alternative way to balance the booksMany CEOs and CFOs are seeking new ideas in answer to the most challenging questions they face; how do they balance the books, adapt and overcome? One solution comes in the form of litigation.
“Litigation has previously been associated with negative consequences, such as potential reputational damage and a drain on business resources.”However, the trend is for many corporates to now look at unrealised litigation as an asset in light of tumbling traditional revenue streams. The sources of unrealised claims are often apparent but overlooked, and include unpaid debts, breaches of contract, patent infringements and the like. During more ?normal times?, a combination of risk-aversion and the possibility of losing at trial could lead a business – particularly an SME – to avoid pursuing a claim, but these are not normal times.
Why would a business pursue expensive litigation when it is already struggling due to the pandemic?The answer is provided by the option of litigation funding, which can be an essential tool for CFOs in transferring the associated costs to someone else?s balance sheet. Although this is a time of unprecedented economic turmoil, litigation often experiences little correlation with the wider macroeconomic landscape. And this means that even during a time of relative economic hardship, when many businesses lack the required funds to litigate, litigation funders still have access to significant capital to back good claims.
How litigation funding worksThe concept of litigation funding is simple. The funder pays the costs of the litigation, without taking over the running of the claim. This allows a business to focus on winning its claim, without the pressure of mounting legal bills. In other words, access to justice. Litigation funders can provide funding for all of the legal costs required to pursue a claim, including the burden of paying the defendant?s legal costs if the claim is unsuccessful. And the funding is non-recourse, meaning the funder only gets paid if the claim is successful, and then only if damages are recovered from the defendant.
“A company with a fully-funded claim can free up capital to be deployed on business operations, rather than on legal bills.”
Litigation funding at workMost recently, we saw the tangible benefits of litigation funding to businesses who had purchased insurance to cover losses caused by, amongst other things, the outbreak of a so-called ?notifiable disease?. Harbour?s funding helped businesses to participate in high-profile litigation, spearheaded by the FCA, concerning whether or not certain business interruption insurance policies should respond to losses caused by the coronavirus pandemic. The Supreme Court?s landmark decision, which is said to impact on claims for at least ?1.2bn in compensation for business interruption losses, brought good news to many SMEs hit hardest by the pandemic. Harbour is funding a number of those SMEs, offering them a lifeline to secure compensation without having to pay a penny in legal fees themselves.
“It is Harbour?s business to view litigation as an asset class and, in time, we believe more CEOs and CFOs will do so too.”With redundancies and insolvencies skyrocketing in the UK, litigation funding provides an option to bring good legal claims which could help benefit the overall financial position of cash-strapped companies seeking to survive and recover from this awful pandemic. About Stephen O’Dowd Stephen is the originator of new investment opportunities for Harbour with a particular focus on class actions, competition claims and the use of litigation funding in Australia. A highly-regarded expert in litigation funding, Stephen has almost eight years? experience of sourcing, assessing and managing complex investments. Experienced in both private practice with Addleshaw Goddard and in-house as Head of Commercial Litigation with British Telecommunications Plc, Stephen has established deep and strong relationships with leading litigation practitioners in Australia and in the UK. Stephen holds a law degree from the University of Nottingham and qualified as a solicitor in 2000. In March 2020, Stephen won the ?Litigation Individual, Europe? award at the Lexology Global Counsel Awards.
Share this story