United States:
Sharing The Credit: Affirmative Recovery Programs Are A Win-win For Legal And The Business
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Legal departments and strategic business units alike have much
to gain from leveraging affirmative recovery programs to recoup
value for their stakeholders. Business leaders are motivated to
protect the company’s bottom line and by pursuing meritorious
litigation through affirmative recovery programs when businesses
are harmed, companies can avoid leaving money on the table.
The
2022 Affirmative Recovery Programs Report shows that legal
departments with a commercial mindset are increasingly leveraging
well-designed programs to maximize legal asset value. Ultimately,
affirmative recovery programs can help legal departments to balance
protecting the company with value-generating
activities—leading to a win-win for both legal and the
broader business. In this article, we examine three ways financed
affirmative recovery programs benefit legal and finance.
1. Legal departments can control cost and risk
Financed
affirmative recovery programs allow legal departments to
control cost and risk while contributing to positive financial
outcomes. This was reflected in one comment by a GC from a
multinational logistics company: “Everything about what I do
is about the value that the legal department generates for the
company, so new creative ways of generating revenue and reducing
risk is very appealing.”
As one litigation counsel of a multinational investment bank
explained: “[Legal finance] does make economic sense because
you can remove negative downside and make the upside more
predictable.” A legal finance partner like Burford can assume
the cost and risk of paying the legal fees and expenses a company
would otherwise be spending to pursue a claim. Because capital is
normally provided on a non-recourse basis, unlike a loan the legal
financier is only paid back and earns a return if and when the
claim resolves successfully. This helps the legal department
reposition itself as more than just a cost center within the
business and helps finance teams to meet fiscal KPIs and
targets.
2. Accelerate the value of pending claims and awards
Companies can also use financed affirmative recovery programs as
a balance sheet solution by using legal finance to accelerate a
portion of a pending claim or uncollected judgment. By “
monetizing” or accelerating the value of
a pending matter in this way, companies can avoid the duration risk
that inherently comes with most commercial claims. Feedback from
the GCs interviewed showed that this was a key benefit, for example
a senior corporate counsel of a media company explained:
“Capital in the company can be invested and produce more money
than waiting for payment…”
The immediate liquidity that is provided by monetizing claims
and awards can be used for other business purposes outside of the
legal function. For example, we have seen monetization capital be
implemented by our clients for marketing and operations
activities.
3. Identify and prioritize potential matters
Aside from the obvious financial benefits to funded affirmative
recovery programs, legal financiers can help companies to identify
and prioritize the most promising pending matters. Since most
companies aren’t in the business of litigation, they will have
relatively limited data sets and prior experience with commercial
claims. Therefore, working with outside partners that have more
data and more experience can benefit them immensely as they
establish or expand a recovery program.
Although legal finance providers like Burford are passive
partners and do not control any aspect of litigation strategy or
settlement, we can offer valuable in-house modelling expertise and
quantitative analysis to help our clients and law firms in their
decision-making. Surprisingly often we find that even companies
that have experience with affirmative litigations are not aware of
the valuable claims they may have. We see this particularly in
situations where anticompetitive behavior by a supplier or
competitor may have gone on for years, resulting in a potentially
eight- or nine-figure claim for the company.
Ultimately, legal finance helps corporate legal and finance
departments to maximize litigation recoveries in a way that
protects the company’s bottom line, avoids surprises and
creates certainty around litigation and arbitration spend. This
creates additional liquidity and allows companies to meet their
main business goal: Generating value for shareholders and other
stakeholders.
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The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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