As COVID’s impact deepens, funding can help companies, outside counsel reduce risk and costs

As COVID’s impact deepens, funding can help companies, outside counsel reduce risk and costs

By: Geoff Moysa, Investment Manager, Legal Counsel

Corporations and law firms are expecting an influx of litigation work related to the COVID-19 pandemic, recent surveys of the legal profession show. Yet the ability of corporations to bring cases may be curbed as they look to control costs and achieve greater efficiency in response to the current economic downturn.

Dispute funding can help bridge the gap for outside counsel and their corporate clients by providing non-recourse financing that allows them to pursue highly meritorious claims without incurring the financial risks often associated with complex commercial litigation.

A funding arrangement provides a company with capital to hire the best-possible counsel for its claims, to preserve its own capital for critical corporate objectives, and to shift most of the cost of litigation off of its balance sheets—while preserving its ability to collect a substantial recovery.

In-house pressures

Two recent surveys of legal professionals illustrate the tension between the likely growth in litigation, and the budget pressures in-house leaders face. In May, Acritas, a legal research company owned by Thomson Reuters, released the results of a survey of more than 2,000 senior legal decision-makers about law firm brands, usage, market trends, and other issues. Also in May, Euromoney’s Legal Media Group (LMG) surveyed a global group of 435 senior legal and company officials from a range of industries about the impact of COVID-19 on their businesses.

Before the coronavirus crisis, large corporate law clients had expected to increase their legal spend. As the LMG survey shows, widespread legal budget cuts have not yet materialized in the wake of the pandemic. At the same time, companies have also not yet experienced the full economic impact of the pandemic and expect budgets will be much tighter in the months to come.

At the outset of the COVID crisis, companies shifted into crisis management mode. Now, they are again starting to plan for the future. As LMG reports, for in-house counsel, the planning includes an expected wave of COVID-related litigation hitting just at a moment when they will likely be tightening their belts.

Already, according to the LMG survey, 20 percent of respondents say they have asked law firms to reduce rates, 41 percent have put their transactions on hold, and 29 percent have stalled key legal department initiatives. The moves signal a desire by in-house counsel for increased efficiency and greater value from their outside lawyers. Clearly, they want legal providers who are willing to innovate, reduce expenses by engaging in process improvements, deploy cost-saving technology, and adjust fee structures.

Monetizing claims

As the Acritas report notes, for legal departments, the strategic focus this year “is on delivering greater value by being more effective and more efficient even while they protect the company.” Law firms can work proactively with clients, the report says, to conduct “a portfolio analysis and risk assessment to help prioritize matters and spend; and discuss bulk work for volume discounts and fixed fees.”

Dispute funding can be of particular help in structuring a portfolio of litigation that bundles and monetizes groups of litigation claims. In doing so, the funder helps clients (and their outside counsel) unlock the value of claims, which are often hidden or undervalued financial assets.

Monetizing claims assists in-house teams with another critical goal: changing perceptions held by some boards and C-suite executives of law departments as corporate cost-centers. Corporate law departments, the Acritas report says, are being asked for “much closer alignment to corporate strategic goals, particularly as companies and industries go through significant changes.”

By forging a relationship with a dispute funder, an in-house department can carefully curate a portfolio of highly valuable claims that may provide a significant return for the company via a recovery. Also, the financing provided by the funder can be treated as income on the corporate balance sheet, helping the company improve its revenue picture long before a claim is adjudicated. And litigation expenses, once a potential drag on the bottom line, are removed, allowing the money dedicated to claims to be dedicated to other corporate priorities.

Controlling external costs

The Acritas survey also reports that 90 percent of respondents said that controlling outside counsel costs was a high priority. Again, funding can allow a company to remove costs from its balance sheets and to externally manage outside counsel costs.

Many established law firms have shied away from accepting the risk of taking cases on a full contingency basis. This can leave companies unable to prosecute their claims or unable to retain counsel of their choice on important claims.

Funders, however, can reduce the risk for outside counsel, paying a portion of their traditional fees and offering them a significant percentage of a successful recovery. Thus, the law firm is able to substantially reduce its risk and is incentivized to seek the maximum possible recovery on the client’s behalf. Meanwhile, a company’s out-of-pocket costs are essentially eliminated, and it is able to retain representation from the best-possible lawyers for its case.

This kind of balance will be critically important in the months ahead, as companies pursue COVID-related claims. Dispute financing can enable corporations and their lawyers to support the expected wave of cases—without draining the company’s coffers and without sacrificing on the quality of lawyers or work that is done on those cases.

To learn more about how litigation financing can assist corporate in-house teams and law firms, 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.