Dispute finance for businesses in difficult economic times
In the current environment, businesses affected by mandatory closures, as well as their lawyers, may face constraints on cash and difficult decisions. Dispute finance options may be part of the solution for businesses seeking to relieve pressure on legal budgets and manage cash flow. We thought a quick overview of dispute finance might be useful for those looking for new strategies.
Where a business has an ongoing or potential legal claim that is likely to yield a monetary recovery, a dispute funder can advance capital in exchange for a portion of the successful outcome of the claim. Dispute funding is not a loan – it is a non-recourse investment secured only against the proceeds of the litigation or arbitration. So if the case fails, the investment is the dispute funder’s loss, not yours.
Dispute finance can provide a range of benefits for companies and their advisers:
- Legal and expert fees: Companies can be forced to choose between using their cash to advance legal proceedings or for their core business. With dispute funding, a company can do both and ensure that it does not leave a valuable asset on the table while focusing on other business priorities.
- Working capital: Where the size of the claim justifies it, a company can use a legal claim as collateral for working capital. This working capital can give companies the breathing room they need to stay afloat.
- Signals confidence to lenders or investors: By involving a dispute funder, a company may be able to assuage the worries of lenders or investors about a litigation or arbitration. At Omni Bridgeway, we assess cases carefully before funding them, and we have an 89% success rate in matters we fund. Our decision to invest in a matter can therefore send a strong signal about the strength of the claim, thereby removing a hurdle to other financial support.
- Improves the bottom line: Under generally accepted accounting principles, litigation or arbitration expenses are recorded when incurred but no corresponding asset is recognised until the case is resolved. This is true regardless of the likelihood of success, and may have an impact over many years. This can have a significant effect on a company’s bottom line. Moreover, even if the company wins, the recovery is recorded as a non-recurring event “below the line.” By partnering with a dispute funder, a company removes these legal expenses from its balance sheet, improving its EBITDA, ameliorating the accounting and financial consequences of bringing meritorious claims.
- Protect your position: Because of concerns about cost, a company may allow meritorious claims to fall by the wayside or accept a low settlement. Dispute finance allows a company to realise the full, merits-based potential of the claim and demonstrates to the marketplace that it will protect its rights – deterring potential wrongdoers and competitors, and attracting further investment.
- Turn a paper judgment into cash: A company may have engaged in litigation or arbitration in the past, resulting in a favourable judgment or award that was not paid, often because it did not know how to enforce it in a foreign jurisdiction or against a defendant who has absconded. Partnering with a dispute funder with enforcement expertise like Omni Bridgeway can turn these paper judgments or awards into cash.
- Monetizing legal claims: Alternatively, a debt, judgment or award, and certain other claims such as insolvency claims, can be sold to the funder via an assignment, which is a quick way of returning cash to the business.
Dispute finance is a flexible tool that leverages an asset that is often untapped. A wide range of companies use it and, during difficult financial times, it can provide a new route to capital. To learn more about how dispute finance might assist you or your company, contact Omni Bridgeway, a global litigation funder with 34 years of experience helping companies.