As the former generals counsel of Michelin North America noted in a recent article for Corporate Counsel magazine, in-house legal teams do a great job of playing defense. They effectively battle litigation filed against their companies, while keeping a close eye on costs.
Yet most in-house legal departments have a difficult time playing offense. That is, they don’t design a game plan that will help them “identify and pursue, systematically, monies which may be owed to the company,” the article said.
Hesitation on the part of in-house teams is understandable: Bringing affirmative litigation is expensive and time-consuming, and the results can be unpredictable. Companies may not have the patience or financial resources to engage in protracted litigation. Additionally, unfavorable accounting rules can make bringing suit even more unattractive for public companies.
Litigation finance helps general counsels mitigate many of these issues—and allows them to transform litigation into assets that can help drive revenue and unlock capital for other priorities. It’s a critical tool that can help legal departments at a moment when corporate pressure to cut costs and produce income is escalating.
Bentham IMF invests in meritorious cases with a high probability of delivering a successful recovery that yields enough return for the claimant, its lawyers, as well as the funder. Unlike a traditional loan, litigation financing is non-recourse, which means Bentham only collects a return on its investment in the event of a successful settlement or judgment.
The non-recourse nature of litigation finance is one of its chief value propositions for corporate counsel. A funding arrangement can help substantially reduce the company’s litigation risk. If a case is lost on the merits, the company is not obligated to re-pay the funder the capital it procured.
Bentham also funds portfolios of litigation that include multiple cases. We place value on the ability to spread risk across a portfolio of investments. And because fairness is one of our core values, we share the benefit of that reduced risk with our portfolio clients by offering lower rates for portfolio financing. A carefully curated and financed portfolio also opens additional opportunities for revenue for the company. Once the funder receives its return from the portfolio, the company retains the exclusive opportunity to collect revenue from the remaining cases as they are resolved. This arrangement allows the company to recover a significant sum, while mitigating risk by using the funder’s capital to pursue litigation.
Further, because the funder is covering the expense of the case, the impact of legal spending on the bottom line is diminished. Legal expenses can impair earnings and trigger intense investor scrutiny. Funding can remove the problem from the balance sheet.
TURNING CASES INTO ASSETS
Funding solves another difficult financial problem. Not only is legal spending immediately recorded as an expense, but the potential recovery cannot be recognized as a potential asset—even in situations where the company may have a strong likelihood of a return from a settlement or judgment. These unfavorable accounting rules—and the resulting drag on profits—are a key reason companies may choose to pass on pursuing litigation, even when it is strong on the merits and likely to result in significant recoveries.
Before it takes on an investment, Bentham deploys a team of highly experienced litigators who conduct due diligence into potential matters. This can be another highly useful resource for a company. Bentham, on its own dime, can validate a company’s existing litigation strategy or provide information that can help it pursue a new strategy.
By working closely with the funder, a legal department can also afford to hire the best possible outside counsel for a case, which can help maximize potential recoveries. Funding can allow counsel at elite firms to offer hybrid contingency arrangements, thus making available even more capital for the company.
When funding is used to finance litigation assets, legal spending is removed from the books, the company’s bottom line improves, and cases are transformed into true financial assets. Hence, playing offense with funding is a game plan that can turn the legal department into a solid source of revenue.
To further explore how the use of litigation finance can benefit your legal department, contact us for a consultation.