How much do funders financing legal claims charge?
Funders predominantly charge based on a percentage of the damages recovered and/or a multiple of the funds committed/deployed. The multiples tend to range from 1-5x depending on the return duration and risk profile of the case. There are various other permutations to these structures, but these remain the most used.
What is litigation funding?
Litigation funding or disputes finance is typically categorised as the use of third-party capital, ordinarily provided on a non-recourse and unsecured basis, for the purpose of paying some or all of the legal costs to pursue a claim.
In return for providing financing, in the event of successful settlement or award, the litigation funder is entitled to a proportion of the claimant’s damages. Should the claim be unsuccessful, the funder loses their investment.
What type of cases can litigation funding be used for?
There is no limit on the types of cases that funding can be used for. Most traditional funders however, will ask that the claim is of a commercial nature (not personal injury), that there is a clear route to recovery, and that there is a sufficient ratio of costs to damages.
Which kinds of legal costs can litigation funding be used for?
Funding is typically used to pay legal fees (solicitor and barrister), disbursements (such as court, tribunal fees or expert fees) and any enforcement costs. However, as the market develops, the availability and use of litigation finance is becoming more akin to traditional corporate finance with an increasing number of funders willing to provide capital for a variety of other uses including financing expansion or providing operating capital.
Why use litigation funding?
Risk management
The ability to limit a claimant’s downside risk as the financial risk is transferred from the claimant to the funder.
Positive accounting recognition
Litigation is notoriously expensive. Those costs are recognised as an expense on a company’s profit and loss account, thereby reducing its operating profits for as many years as the litigation continues. This can have a negative effect on EBITDA, thereby reducing the company value. By using funding, legal costs can be taken ‘off balance’ sheet, thereby ensuring that a company’s operating profit is not unnecessarily reduced and the company accounts will show a more accurate position of the company value.
An additional layer of diligence
Funders only invest in cases that they consider are likely to succeed. After all, there is no money to be made backing losers. Most funders will also have significant in-house legal and financial expertise. Those skills can be useful to a potential claimant as they will have an interested, but dispassionate party who will stress-test the strength of your case and provide useful input over the life of a case.
Cashflow assistance
For many claimants, particularly corporates, the significant legal spend to pursue a claim can cause a drain on finances as well as presenting an opportunity cost, as vital cash resources are diverted away from revenue generating activities. In addition, by avoiding the use of traditional debt facilities, the claimant avoids further indebtedness.
EAKO can help your business secure funding for a range of products and services, including:
Through our network, we help you eliminate the financial risks of a dispute whilst retaining value for shareholders.
Portfolio funding
In certain instances, funders may be willing to purchase claims outright and pursue them in their own right. The Claimant benefits from immediate payment and potentially a further payment upon case conclusion.
Monetisation of claims & awards
Funding can be obtained when funds are exhausted following successful litigation but further monies are required to recover damages. It will be necessary to provide an enforcement strategy with evidence and a budget.
Judgement or Award enforcement
Where there is potentially a good claim that requires a discrete item, such as counsel’s advice or an expert report, to enable full funding to be sought, limited seed financing can be sought to enable the claim to progress.
Early stage finance
Through our network, we help you eliminate the financial risks of a dispute whilst retaining value for shareholders.