Legal departments and strategic business units alike have much to gain from leveraging affirmative recovery programs to recoup value for their stakeholders. Business leaders are motivated to protect the company's bottom line and by pursuing meritorious litigation through affirmative recovery programs when businesses are harmed, companies can avoid leaving money on the table.
The 2022 Affirmative Recovery Programs Report shows that legal departments with a commercial mindset are increasingly leveraging well-designed programs to maximize legal asset value. Ultimately, affirmative recovery programs can help legal departments to balance protecting the company with value-generating activities—leading to a win-win for both legal and the broader business. In this article, we examine three ways financed affirmative recovery programs benefit legal and finance.
1. Legal departments can control cost and risk
Financed affirmative recovery programs allow legal departments to control cost and risk while contributing to positive financial outcomes. This was reflected in one comment by a GC from a multinational logistics company: "Everything about what I do is about the value that the legal department generates for the company, so new creative ways of generating revenue and reducing risk is very appealing."
As one litigation counsel of a multinational investment bank explained: "[Legal finance] does make economic sense because you can remove negative downside and make the upside more predictable." A legal finance partner like Burford can assume the cost and risk of paying the legal fees and expenses a company would otherwise be spending to pursue a claim. Because capital is normally provided on a non-recourse basis, unlike a loan the legal financier is only paid back and earns a return if and when the claim resolves successfully. This helps the legal department reposition itself as more than just a cost center within the business and helps finance teams to meet fiscal KPIs and targets.
2. Accelerate the value of pending claims and awards
Companies can also use financed affirmative recovery programs as a balance sheet solution by using legal finance to accelerate a portion of a pending claim or uncollected judgment. By " monetizing" or accelerating the value of a pending matter in this way, companies can avoid the duration risk that inherently comes with most commercial claims. Feedback from the GCs interviewed showed that this was a key benefit, for example a senior corporate counsel of a media company explained: "Capital in the company can be invested and produce more money than waiting for payment..."
The immediate liquidity that is provided by monetizing claims and awards can be used for other business purposes outside of the legal function. For example, we have seen monetization capital be implemented by our clients for marketing and operations activities.
3. Identify and prioritize potential matters
Aside from the obvious financial benefits to funded affirmative recovery programs, legal financiers can help companies to identify and prioritize the most promising pending matters. Since most companies aren't in the business of litigation, they will have relatively limited data sets and prior experience with commercial claims. Therefore, working with outside partners that have more data and more experience can benefit them immensely as they establish or expand a recovery program.
Although legal finance providers like Burford are passive partners and do not control any aspect of litigation strategy or settlement, we can offer valuable in-house modelling expertise and quantitative analysis to help our clients and law firms in their decision-making. Surprisingly often we find that even companies that have experience with affirmative litigations are not aware of the valuable claims they may have. We see this particularly in situations where anticompetitive behavior by a supplier or competitor may have gone on for years, resulting in a potentially eight- or nine-figure claim for the company.
Ultimately, legal finance helps corporate legal and finance departments to maximize litigation recoveries in a way that protects the company's bottom line, avoids surprises and creates certainty around litigation and arbitration spend. This creates additional liquidity and allows companies to meet their main business goal: Generating value for shareholders and other stakeholders.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.