The CFO perspective on dispute financing
The priorities and challenges that today's CFOs face are varied and complex. These include increased regulatory and compliance demands, liquidity issues, the search for value for money and the constant pressure to do more with less. Consequently, CFOs need to be solution driven and agile in what they do.
Dispute financing is a new asset class and a fast-growing market. In this podcast, Omni Bridgeway’s Group Chief Financial Officer Stuart Mitchell talks about what attracted him to the dispute financing industry and how dispute finance assists today’s CFOs to address their priorities and challenges by converting third-party litigation from a fee or an expense into an asset.
Stuart provides his views on:
- Some of the priorities and challenges that today's CFOs face, including increasing regulation, challenges of risk and capital management, customer and stakeholder satisfaction in the face of industry disruption and ongoing budgetary constraints
- How a CFO might prioritise risk management, capital management and budget restraint, and some strategies CFOs are employing to address these demands and meet the challenges.
- Key points that a CFO should know or needs to know about third-party dispute financing, including that it removes litigation from an expense line and shifts it onto the balance sheet as an asset with potential recovery, that it is non-recourse financing and that when dispute financing is funded by Omni Bridgeway, organisations are also assisted by the skills of Omni Bridgeway’s investment Managers.
Podcast Transcript
Justin McLernon:
Hello and thank you for tuning in to the Beyond Hourly Podcast, hosted by Omni Bridgeway, one of the world’s most experienced dispute financing firms and enforcement specialists. Our podcast series focuses on commercial disputes around the globe and innovative ways to maximize value for clients and law firms.
Episodes of this podcast can be found on our website at www.omnibridgeway.com, and also on iTunes, Spotify and other podcast networks. We welcome you to subscribe to the podcast and leave us reviews and suggestions.
My name is Justin McLernon and I’m your host for today’s podcast: ‘The CFO perspective on dispute financing’. I’m an Investment Manager based in dispute financing firm Omni Bridgeway’s Perth office. My role at Omni Bridgeway is to source and evaluate potential case investments and manage those which are approved for dispute financing through to resolution.
Today’s podcast is a flashback to a discussion last year with my colleague Stuart Mitchell, the Sydney based Group Chief Financial Officer of Omni Bridgeway’s global operations. This is a discussion Stuart and I had shortly after his appointment. Prior to joining Omni Bridgeway, Stuart was CFO, legal counsel, and company secretary for Ironbridge Capital, an Australian based investment and private equity firm, which provides funding for domestic and international businesses.
My chat with Stuart took place before the COVID19 pandemic but has assumed even more relevance in the current economic landscape. It also took place before the merger of global dispute financing firms, IMF Bentham and Omni Bridgeway in November 2019. Earlier this year IMF Bentham and all brands in the Group adopted the unified global name Omni Bridgeway. During the podcast you will therefore hear Stuart and I refer to the former company name, IMF Bentham.
I talked to Stuart about the challenges facing CFOs and also about third-party dispute financing. What is it? And how it is being used? And what a CFO should know about dispute financing and how it is assisting corporates.
I started by asking Stuart about the role of today's CFOs. Having occupied two of the critical positions in a corporation, as CFO and legal counsel, Stuart is uniquely placed to offer some insight into the machinations of corporate management through both the legal and financial lenses. Therefore, my first question to Stuart was about his take on the priorities and challenges that today's CFOs face.
Stuart Mitchell:
Hi, thanks Justin. I'm the recently appointed CFO at IMF, I have, in effect, control and accountability for the planning, implementation, managing and running of the financial activities of the IMF group.
After obtaining professional accreditation and working as both a chartered accountant and as a solicitor in New South Wales I've amassed over 20 years of experience in the financial service's sector in Australia and the UK.
As Justin said, most recently prior to joining IMF I was the CFO at a large Australasian focused private equity fund. With its expanding geographical and product offering of IMF in conjunction with an aim to have funds under management exceeding one and a half billion dollars by the end of FY19, IMF was an attractive opportunity for me to pursue. I'm glad to be on board.
Justin McLernon:
Terrific Stuart. So, you've only recently joined IMF. What can you tell us about dispute financing firm IMF Bentham and what was it about the company and I suppose the dispute financing industry in general that attracted you and persuaded you to leave your job and join IMF?
Stuart Mitchell:
Well obviously IMF is a publicly listed company with headquarters in Australia. It operates out of 14 offices across six countries, with a high success rate of 90% plus, from over 150 completed cases. Those figures speak for themselves I think. It is a pioneer in the industry with a strong reputation for integrity and transparency.
I've always been an admirer of IMF from afar as it has done a number of class actions in Australia with the apparent consequence of their protection for an individual’s rights. As I'd always been involved in accounting and finance from funds management, I had an intellectual interest in the law that I did not transfer into a career interest for any great length of time and it is now coincidentally fortuitous for me to bring the funds management perspective to an asset class I have an empathy for.
Additionally, I was attracted to the disruptive and embryonic nature of the sector and the underpinning concept of litigation financing's ability to provide access to justice.
Justin McLernon:
Fantastic. Okay so let's put the spotlight perhaps on the role of today's CFOs. I think that having occupied two of the critical positions in a corporation Stuart, CFO and legal counsel, you're actually quite uniquely placed to offer us some insight into the machinations of corporate management through both law and financial lenses.
What do you see as some of the priorities and challenges that today's CFOs face?
Stuart Mitchell:
Justin, I think the priorities and challenges are varied and complex. The CFO remains responsible for all the financial aspects of a business and should aim to provide advice to the CFO, the management and the board.
In recent times I think the increase in regulatory and compliance demands have fallen to the CFO and these, along with challenges of risk and capital management, customer and stakeholder satisfaction in the face of industry disruption and ongoing budgetary constraints, have made the CFO a vital cog in that management complex.
This challenge is going to continue to increase whilst the financial imperatives have not disappeared, and I think a CFO needs an ability to be agile and find solutions to any of those scenarios as they develop.
Justin McLernon:
It certainly sounds like CFOs have a lot of plates spinning in the air. What do you think has changed for the modern CFO?
Stuart Mitchell:
As I just mentioned, I think the increased regulation and disruptions are the first things that spring to mind, whilst the search for value for money and the constant pressure to do more with less has been particularly prevalent since the GFC. I believe that both of those items will remain with us.
Justin McLernon:
Are you aware of any differences between industries and the types and sizes of different organisations, or do you tend to think that the challenges for CFO's are likely to be the same irrespective of their industry or organisation?
Stuart Mitchell:
I think in general the challenges are the same. However, there are obviously regulatory or jurisdictional or technological factors that are particular to any industry. Environmental issues obviously spring to mind as something that's going to come up more and more. But in general, I think the CFO has to have that ability to find the financial solution whilst being aware of the stakeholders’ issues throughout those dynamics.
Justin McLernon:
Understood. So, let's take a look now at how a CFO might conceptually prioritise risk management, capital management and budget restraint. Stuart, where do these things sit on the list for today's CFOs?
Stuart Mitchell:
I like you term earlier about things in the air. At any particular point in time they're at the forefront so they don't disappear. I think it would be easy to say that the capital management and therefore the resource allocation as a general concept overrides all of them and permeates any particular element to it. The CFO sits there with that financial imperative and the ability to recognise customer, stakeholder and other imperatives fits within that gambit.
Justin McLernon:
And so what strategies are CFOs employing to address these imperatives and meet the challenges?
Stuart Mitchell:
I think that CFOs need to be solution-driven and agile in what they do. I think it goes in waves but an ongoing concept to outsource or find best of breed to assist where possible. I think that CFOs can't do everything, I don't think general counsel can do everything, so an ability to find the right thing to leverage off is an important strategy to be able to implement.
Justin McLernon:
I think that provides a great segue into what IMF's business, third party dispute financing, is all about. So, for those of you who may not be familiar with this form of finance, in brief, third party dispute financing is the funding of commercial litigation, bankruptcy litigation and also includes arbitration by someone who is not a party to the claim in return for receiving a share of any judgment, settlement or award.
A third party typically assumes all of the bills and these include solicitor and barrister fees, expert fees and other disbursements and they also assume all of the risk that the claim is unsuccessful, and that includes adverse fees and security for fees in loser pays jurisdictions. And this is commonly used in commercial disputes, insolvency claims that are brought by liquidators, receivers and administrators, and of course also in multi-party actions.
Now if the dispute is resolved successfully, and that may be by way of a settlement or judgment, or in the case of arbitration, an arbitral award, then the funder is reimbursed its direct outlays plus a share of the amount recovered. So, the finance is non-recourse which means that if the claim fails it's the funder not the claimant who bears all of the fees including, of course, any adverse bills.
So how is third party finance being used today and how is it different from how it's been used in the past?
Well today third-party dispute financing has been embraced by many jurisdictions in the UK, in the EU, North America and Latin America, Asia and the Middle East with the law and regulatory frameworks in those jurisdictions adapting to dispute financing to allow it to proceed.
Product offerings have also evolved to become much more bespoke and to cater to a wider range of claimant needs and these include things like working capital funding, seed funding to get a claim underway and to carry out investigations, to assess whether there is in fact a meritorious claim, as well as more recently claim portfolio funding. And this natural evolution has led to the introduction of corporate finance and risk management solutions for solvent companies and this is an alternative means of financing the pursuit of their valuable commercial claims which in enabling these well-resourced claimants to use third party dispute finance really as a tool to manage their fees and risks.
So, I think third party dispute financing is certainly becoming a mainstream financial product and service and it's rapidly moving towards general acceptance in the business community.
Justin McLernon:
So, Stuart, can I ask your views on who's using third party dispute financing today? Is there a typical size or a type of business or are there particular industries and are there key jurisdictions where we're seeing that the real market or the largest market for dispute finance?
Stuart Mitchell:
Look I think it's fair to say that to a large extent it's still a new asset class and it's a fast-growing market. The key jurisdictions include the Asia Pacific, U.S.A, Canada and Europe. It's available in Africa and South America as well. There are nuances in each of the different jurisdictions but it's becoming global.
It's available to corporates, small to large multinationals and I think that as it becomes more mainstream and more are aware it will spread further. As far as industries go, anything: consumer goods, energy, financial services, technology and telecommunications. I think it's going to become vital to the way law firms operate and in the US and Canada business we provide financing to law firms in respect of their portfolio of cases.
Justin McLernon:
Okay. So, what do you see as the key points then that a CFO should know or needs to know about third party dispute financing?
Stuart Mitchell:
At this stage I think it's a case of getting the message out to the CFOs in general, that it is an available product and service.
Justin McLernon:
Look I think that may sound obvious but one of my responsibilities as an investment manager is to go out there and meet with the corporates and tell them about IMF Bentham's dispute finance product offerings and make them aware that funding for solvent corporates is something the we do offer and explain how it can provide a commercially effective alternative to the more traditional approaches to managing commercial disputes but I find that it's not something that many organisations I speak with seem to know much about.
What can you tell us about what a CFO should know about it so that that's communicated through to the upper echelons in the organization?
Stuart Mitchell:
Yeah, I think you're spot on in that summary. Dispute financing removes litigation from an expense line and shifts the litigation onto the balance sheet as an asset with potential disputed amount recovery. The financing available is non-recourse so that the entity using this approach effectively for no fee or associated impact, can protect the claims that it feels that it has. Also, without a distraction of resource and still receive compensation around those areas.
I think as an asset reallocation solution it's a bit of a no brainer and I think that should resonate strongly with CFOs. With IMF Bentham, on top of that you also receive the skills of people like you and the other investment managers around the organisation.
I think it's a great value add to finance and any legal area to have that experienced dispassionate third-party advisor to assist with any potential litigation claim. It's not business as usual for most organisations to be considering these things and therefore can be very disruptive and a major resource sinkhole. I think non-recourse financing and IMF’s skills absolutely flip that on their head and make it a very positive looking asset.
Justin McLernon:
Absolutely yeah, it certainly seems to make a lot of sense. What are some of the ways in which you think third party dispute financeing can assist a CFO?
Stuart Mitchell:
Without it being a resource drain, I think it allows the CFO to align with the stakeholders to pursue revenue and bottom-line results. It's imperative to be able to protect your rightful claims as an organisation to protect your intellectual property and the contractual rights and to communicate to competitors or others that your company or firm is not a pushover. So, it just is an ability to protect your hard-earned worth is valuable.
Budgets are challenging in many industries and yet these are pseudo assets that are sitting around with potential claims and real significant revenue hiding within many companies. Through non-recourse financing and no actual fee outlay these can be accessed.
I think many companies have dormant meritorious claims. There’s an example of DuPont which recovered 2.7 billion dollars US between 2003 and 2014 from identifying and pursuing claims that might otherwise have sat there or been wasted. I think that's a large number that many organisations won't necessarily have that same number but have the same hurdle to overcome in pursuing them and IMF and third-party funding overcomes that.
Justin McLernon:
We speak to both the CFOs and legal counsel about IMF Bentham's dispute finance for corporates and I've certainly noticed that the message strongly resonates with CFOs, but do you think that third party dispute financing is or should be the sole domain of the CFO or should it be the sole domain of legal or general counsel or do you think it's something that both really need to be alive to?
Stuart Mitchell:
Look I think it's both, but it will depend on every organisation. In many corporations, the CFO has the umbrella responsibility for legal as well. I think if they are separated there should be a close alignment between the two.
As an asset class as an option for corporates and it becomes more mainstream and its acceptance becomes more prevalent, I think there's a possibility that it could fit within either bucket more easily, but I think that that would lose some of its imperative value to both.
I think that as an independent buy into claims potential managing the running of the budget or the strategy around litigation that IMF brings which, as I say is not business as usual for those other organisations. I think it's a valuable outsource service for both the CFO and the general counsel.
In the DuPont example, there was strong collaboration between finance, who saw the benefits, and their corporate counsel.
Justin McLernon:
Okay, so Stuart there's a question then isn't there about what CFOs should be communicating to their colleagues about third party dispute financing and what conversations they should be having with their in-house legal team, perhaps even with the board with the directors and with those who are responsible for navigating and managing the company’s risk.
Stuart Mitchell:
I think that's right, and I think that along with that risk overlay that is embedded within the CFO role, I think there needs to be or recommended to be a systematic method of identifying these potential claims and they come from the operations and maybe marketing or other aspects within an organisation rather than necessarily from finance. So, I think that needs to be filtered into that pot. I then think that the CFO and GC need to be able to consider third party financing within that strategic recovery program and make it not a fees centre but a revenue centre. I think litigation financing allows that to occur once the organisation has that, “Oh hang on here is something that we could utilise or crystallize. It's not in our ordinary course of business but we've identified it. Now how do we do something about it?"
Justin McLernon:
I think you gave us the example earlier of the DuPont litigation and by the sounds of it that's not a typical case, but can you give us an example of a CFO or a company using third party dispute financing and how that impacted on the risk profile or the budget?
Stuart Mitchell:
Yeah, I've seen it occur within a funds management portfolio and the ability to protect an investment without there being a need to erode or go through an investment decision about using a finite amount of capital and as I say that comes back to a resource allocation solution.
Pfizer and GlaxoSmithKline have been most interested in the way that the DuPont recoveries program went and they're pursuing or investigating similar type of things.
Locally we've recently assisted a major energy corporation in strategies to fund their infrastructure dispute with multinational parties and globally the range of products and things that IMF have looked at is very extensive and I think would give comfort to any particular organisation that if there's something that's questionable that they can do something with, they should investigate it.
Justin McLernon:
I think that's an excellent summary, Stuart thanks. So, if a CFO is interested in exploring third-party dispute financing and they want to get in touch with us how do they go about it?
Stuart Mitchell:
Simplest would be to give us a call, access our website www.imf.com.au and you'll see the track record, the transparency that is incumbent upon us as a listed company and see the professionals and the organisation, get in touch with them individually. If anyone would like to call or email directly I'd be more than happy to put them in touch with one of our expert investment managers. My email is [email protected] or my phone number is +612 8223 3567.
Justin McLernon:
That concludes our episode. Thank you very much to Stuart Mitchell for being our guest on this podcast.
You can access a transcript of today’s podcast on our website blog page.
As I mentioned at the outset, episodes of Omni Bridgeway’s Beyond Hourly podcast can be found on our website at www.omnibridgeway.com as well as iTunes, Spotify and other podcast networks and I invite you to subscribe and leave your reviews and suggestions.
If you are interested in exploring third-party dispute financing and want to get in touch, please feel free to contact me at [email protected], or to provide any feedback, ideas or insights you have on topics we should cover on our podcasts. We’ll be back soon with another episode.
Until then, thank for listening and good bye.