For New GCs, Litigation Finance Can Help Accelerate Law Department Transformation

June 12, 2019

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Litigation finance can serve as a powerful tool for new general counsel looking to transform their law departments.

According to recently published data by BTI Consulting, 22% of law firm clients have hired new general counsel during the last two years. With baby boomers now retiring in greater numbers, expect the surge in turnover among law department leaders to continue for the foreseeable future, BTI said.

The new GCs are inheriting a rapidly shifting legal department landscape. Increasingly, companies are expecting law department leaders not only to mitigate risk, but to help generate revenue and boost corporate profit margins.

In its report, BTI noted that the new crop of GCs has started work as a surge of “risk and uncertainty hit the market. This is their version of normal. They look at life solely through a high-risk filter.” And as they assume leadership over their departments, “the new GCs dive into complexity head first. They want to sort it out into its component parts and solve the core issues.”

In our experience at Bentham IMF, one of the most complex issues facing GCs is the expense of litigation. Most law department budgets are built with defensive litigation in mind, leaving little for companies to pursue cases that might help assert their rights in the marketplace or result in a substantial recovery. Even companies that have the resources to pursue affirmative litigation sometimes shy away because of the time required, and distraction caused, by bringing plaintiff-side matters.

One of the key barriers for GCs who would like to pursue valuable and even necessary claims on behalf of their companies is how litigation affects the corporate balance sheet under the accounting rules. Litigation expenses are recorded as soon as they occur and can have a negative impact on earnings. Meanwhile, a potential recovery cannot be recognized as future income, and if a significant recovery does eventually occur, it is recorded as a special event—and thus, below the line on a profit and loss statement.

 

HOW FINANCING HELPS

A litigation funder can help mitigate these issues. Highly reputable and experienced funders like Bentham make non-recourse investments in meritorious cases where there is potential for a significant monetary settlement or judgment. The non-recourse nature of the financing means that the funder receives a return on its investment only in the event of a successful recovery. If the claimant loses the case, the funder receives nothing.

Funding helps transform litigation from an expense to a cash-generating asset. When provided in the form of working capital, the investment from a funder can be counted as income. And capital that may have been spent on pursuing the litigation is freed up for other strategic corporate priorities or to help fund even more revenue-generating affirmative litigation.

A funding arrangement can also help reduce litigation risk by helping the company afford the best-possible counsel for the case and ensure that a matter is pursued to its maximum possible return—not settled early for pennies on the dollar because of financial constraints.

Even before a case is filed, Bentham, at its own expense, can help a company review its potential litigation strategy and select the claims that are strongest on the merits and are most likely to return the greatest potential recoveries. Three or more meritorious cases can be bundled into portfolios to keep the cost of capital down. A well-chosen litigation portfolio allows the company to potentially recover a significant sum, while mitigating risk by using the funder’s, and not the company’s, capital to bring cases.

By developing a strong relationship with a litigation funder like Bentham, new GCs can completely reconfigure litigation strategy for their companies—generating new revenue, reducing costs, and mitigating risk. This can also help them prove to corporate leadership that legal departments are far more than cost centers.

Contact us for more information on how to use litigation finance to transform your legal department into an asset for your company.