Why dispute funding should be on your company's radar
When a company thinks about engaging in litigation, it is rarely a welcome thought. After all, litigation can be unpredictable and costly, and when paid for by the company itself, can affect cash flow and consume profits.
Dispute funding can dramatically alter this picture. Working with a funder, a company can preserve its cash, uncover and maximize its litigation assets, protect the business from predatory competitors and reputational damage, and resist the financial pressure to settle a case early for pennies on the dollar.
“Dispute funding” or “litigation finance” allows a company to pursue meritorious litigation through an investment by a litigation funder, where a funder advances capital for legal fees, experts, and all of the other expenses associated with a legal dispute or matter in arbitration. The financing typically is non-recourse, which substantially reduces financial risk for the company. In the event of a successful settlement or judgment, the funder generally receives a multiple or percentage of its investment from the proceeds. On the other hand, if the case is unsuccessful, the funder receives nothing.
Dispute funding also helps companies:
Manage cash flow.
Working with a funder to finance litigation allows a company to use its cash for its operations and growth rather than the costs associated with litigating its dispute. When a claim is successful, revenues can be recorded without the company having expended any cash along the way. If the claim is unsuccessful, the company pays nothing because the capital was provided by the funder on a non-recourse basis.
Improve the balance sheet and income statement.
Litigation poses a particular problem for EBITDA-focused companies because of its impact on the balance sheet and income statement. Typically, litigation expenses must be recorded as soon as they occur, yet a potential recovery cannot be counted as projected revenue. And if a case is successful, the windfall is treated as special income that cannot be used in the company’s profit calculations. With funding, working capital provided by the funder can be recognized long before a potential recovery. At the same time, the funder is covering litigation expenses, allowing those costs to disappear from the balance sheet and income statement. In the end, litigation is transformed from a drag on profits into a potentially lucrative asset that pays dividends up front with the funder’s investment and at the end of a case from the proceeds from a potential recovery.
Uncover an asset.
Good corporate governance requires that a business explore opportunities to monetize its assets. And with funding, strong, affirmative legal claims have the potential to be transformed into a bankable corporate asset. Funding allows companies to pursue plaintiffs-side claims without risking their finances on the ongoing expense of a lengthy case. Companies working with funders can monetize a case from the outset, substantially reducing their out-of-pocket costs and maximizing the potential value of a settlement or judgment.
Assess the merits of claims.
The best litigation funders conduct robust due diligence before investing in a claim. Omni Bridgeway, for example, is staffed by a team of highly experienced professionals—not financial quants—who have themselves litigated complex cases and understand how to value claims and assess their chances for yielding positive outcomes. We analyze the legal theories and applicable case law, gauge realistic damages, and evaluate the ability to collect payment from the defendant. This assessment is a useful resource for a company, allowing it to validate and improve its existing legal strategy (at no cost to the company), and make a better-informed decision about whether to proceed with litigation.
Connect with the best-possible counsel and experts.
Not every lawyer—even a great lawyer—is the right lawyer for every dispute. Having the right team in place for a company’s specific claims can ensure the case is advanced in the strongest way possible—and that the company receives the maximum return from a potential recovery. Omni Bridgeway, as the largest and oldest dispute financier in the world, has a vast network of litigation and arbitration professionals around the world. If needed, we can introduce companies to top litigators, as well as to damages experts, asset tracers, public relations professionals, and other key members of a legal team.
Develop a portfolio of revenue-generating claims.
Companies often have a number of potentially valuable plaintiff-side claims that go unpursued for various reasons. A funder can work with a company to create a portfolio of meritorious contingency cases. This, in turn, allows the company to accept an even larger investment from a funder and increases the possibility of a material financial gain as cases are adjudicated.
To learn more about how dispute finance can help your company, visit our Company Insights. While there, explore our recent podcasts, blog posts, and videos. Or contact us for a consultation to learn more about the ways we can help you pursue meritorious claims.