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Commercial

Got Tax Disputes? Litigation Funding to the Rescue

Tax disputes are common, yet notoriously difficult to complete. They’re also expensive, complex, can take years to fully resolve and even longer to complete structured payments. When large businesses and corporations are involved, existing rules make the situation even more complicated. Litigation Finance is commonly sought in class actions and other large litigation. But now some suggest that there’s a place for litigation funding in the world of tax disputes. The Northern Miner explains that as COVID impacts large industries like mining, the need for liquidity is of the essence. When a business with over $10 million in capital disputes its owed taxes, they’re required to pay half of the disputed amount upfront. In some instances, businesses will prepay the entire tax bill to avoid late fees and penalties should they lose the dispute. That, of course, can leave businesses cash poor. For funders, tax disputes are a pretty safe investment. There’s typically a monetary payout, and the defendant is always able to pay. Tax disputes are also less likely to endure setbacks like summary judgments and preliminary motions to dismiss. In Canada, successful litigants can be eligible for cost awards that cover most, or all, litigation costs. In the coming months, COVID-related economic response plans will come into effect in Canada. This will likely lead to more audits of businesses, and therefore an increase in tax disputes. With that in mind, Litigation Finance is expected to grow even more in the Canadian markets. That’s good news for anyone expecting a tax dispute, as third-party funding is well-poised to help manage the risks and potential cost of seeing tax disputes to completion.
Commercial

India Clarifies Law on Readily Realizable Assets in Liquidation

Generally speaking, a corporate liquidation shouldn’t take longer than a year. Yet it often does. There are myriad reasons for this, but one of the most common is the existence of NRRAs, or Not Readily Realizable Assets. India Business Law Journal explains that the Insolvency and Bankruptcy Board of India is taking steps to address this. NRRAs can include disputed or contingent receivables, disputed assets, or anything deemed potentially undervalued, fraudulent, or extortionate as defined by law. What is a liquidator to do with a limited amount of time and multiple parties waiting for their share? The challenges faced by liquidators are being considered by IBBI, which has led to multiple proposals. One of which includes the use of third-party litigation funding to realize the full value of NRRAs. The current proposal is for liquidators to assign these assets to third-parties for a fee. These third-parties would then fund the court proceedings needed to gain their full value. The thinking is that third-parties could focus on one specific asset, cutting down the time it takes to bring legal action to completion. The goal then would be for assignees to recover a larger sum than they paid to gain the assignment of assets. This scheme would shorten liquidation processes while still allowing the full value of assets to be realized. Liquidators would be required to seek out maximum value for assets, and there would also be a provision for an early exit for those creditors in immediate need of liquidity. While stakeholders might benefit from this arrangement in the beginning, it’s possible that they’d lose out on larger payouts later on.
Commercial

Burford CEO Q&A: The Future of Litigation Funding

A trade group comprised of Litigation Finance entities was a long time coming. Over the last decade, the industry has evolved from a niche service used in very specific circumstances to a multi-billion-dollar industry spanning the globe. The formation of the International Legal Finance Association (ILFA) is a welcome addition to the litigation funding landscape.  Westlaw Today offers commentary from Christopher Bogart, CEO of Burford Capital—one of the founding members of the ILFA. He comments on where he sees the industry headed over the next few months, and what we can expect moving forward, through COVID and beyond. Bogart explains that the main focus of the ILFA is to advocate for industry-friendly legislation, and to educate lawmakers and the public about Litigation Finance. He points out that clients don’t always like to discuss litigation, making it less well-understood than other aspects of law or finance. Bogart details that getting into Litigation Finance requires extensive knowledge and a well-developed infrastructure that is best accomplished by experienced legal or financial professionals. In the future, Bogart predicts that funders will present themselves as financial service pros rather than members of an upstart industry. Further, the trend of corporate clients monetizing litigation and using it as capital, rather than simply to resolve disputes, will only accelerate. Bogart also points to how laws are changing around the world. In the US, some states are now allowing non-lawyers to own legal firms—a trend already growing in Europe. This opens the door to big changes and potential collaborations, not to mention expansion. As of this writing, Burford has an equity interest in multiple law firms throughout the UK.
Commercial

Singapore Legislation Welcoming Litigation Funders Goes into Effect

As the Litigation Finance industry has grown, some parts of the world have met the practice with suspicion. Some countries have suggested or enacted legislation designed to encumber and restrict the process of third-party funding in litigation. In the wake of COVID-19, however, the need for the practice has been affirmed. Omni Bridgeway explains that Singapore is one country whose newest legislation is welcoming to the practice of litigation funding, and cognizant of the good it can do. The Insolvency, Restructuring, and Dissolution Act was passed in 2018, and went into effect in July of this year. Provisions of the IRDA include consolidation of personal and corporate insolvency, as well as debt restructuring laws. It also expands the powers of judicial managers and liquidators as they relate to dispute funding. Judicial managers are a softer option than liquidators, in that the appointment of an external judicial manager will protect the company from legal proceedings during the process—at least temporarily. This gives the company a better chance to get its finances in order for a potential recovery. When action is taken against an insolvent business, a third-party funder may be used in several specific situations, such as fraudulent trading, unfair or undervalued trades, and damages against individual delinquent officers. That said, the new IRDA provisions are not intended to impact existing funding arrangements or laws regarding them. Class actions and other types of third-party funding against companies are still permissible. Singapore also enacted a Temporary Measures Act, which came into law in April of this year. It offers temporary financial relief for individuals and businesses—and will remain the law until October 2020. Some speculate that extensions may be granted, depending on the COVID situation at that time. The act increases the thresholds for bankruptcies, and extends the deadline for businesses and individuals to respond to demands from creditors.
Commercial

Keeping Corporations Honest with Class Actions

Unless you are new to the world at large, you know that corporate misconduct happens. And sadly, it’s not always appropriately consequenced. In Australia alone, over a billion dollars has been paid or offered to customers as part of awards or settlements for misconduct.   Omni Bridgeway explains that the numbers on corporate misconduct are staggering. Almost $900 million has been recovered for shareholders thanks to class actions that took place tween 1992-2019. This doesn’t seem like much when compared to the nearly $2 trillion in the ASX market. But when calculating the human portion of the equation—class actions can make a major difference in the impacts of corporate crimes. What can be done to hold banks and other institutions accountable before they can cheat ordinary citizens? The first line of defense is effective regulation that is reviewed often. Consumer protection laws are often lax, despite their importance. ASIC Commissioner Sean Hughes has stated that ASIC recognizes that it’s on them to inspire conduct that will restore public trust. He followed by affirming ASIC’s intention to be ‘strategic and forceful.’ Next is voter power within the organizations themselves. If shareholders can agree to put ethical values before profits, there wouldn’t be a need for the third option—class actions. Class actions are sometimes the only way regular people can seek redress when they’re wronged. Except that when someone has just undergone a financial disaster—loss of home or income, lost life savings, even death—they may not be able to afford to file a legal claim. That’s where Litigation Finance comes into play, and in many cases, saves the day. By providing the means for class actions to move forward, wronged citizens have access to the justice they deserve.
Commercial

Litigation Finance Valuation: An Antitrust Case Study

Understanding how to assess the value of claims is an essential part of Litigation Finance. Any reputable funder will have their own in-house team of analysts and experts in a variety of disciplines. One way to better understand the process, is with case studies. Burford Capital offers this case study to demonstrate its vetting and valuation process for potential cases. The antitrust case presented, involves price-fixing within the dairy industry. The action alleges a conspiracy to reduce the supply of milk to drive up prices. In antitrust cases, there are three main things to consider: overcharges, single damages, and potential settlement value. Overcharges are exactly what they sound like—how much extra buyers were forced to pay due to the alleged price-fixing. Market data is used to show patterns in pricing and elasticity (elasticity refers to how much a product’s pricing is impacted by supply and demand). In the case of dairy products, elasticity would be significant. Once the overcharge amount has been estimated, the single damages must then be calculated. This formula is basically the amount the buyer should have paid (or would have paid, but for the conspiracy to drive prices up,) subtracted from what they actually paid. In the US, federal antitrust laws require awards of three times the single damages amount. Settlement value refers to the amount—usually, a percentage—of the single damages claim that can likely be collected. This can be impacted by the stage of litigation when a settlement is proposed (before discovery, after a motion is denied, etc.). Whether the buyer is a direct or indirect purchaser might also impact settlement value, as would any related criminal proceedings. Settlements tend to be higher when there are criminal charges pending in connection with the case. As one can see, a funder's calculation doesn't conclude at whether or not the case is winnable. Settlement value is a key tenet of investment valuation.
Commercial

Interpreting ABA’s Best Practices Guidelines

As Litigation Finance has grown, so has industry suspicion over the practice. Some groups are obsessed with the idea that lit fin requires greater oversight and even reform. In August of this year, the ABA distributed its Best Practices for Third-Party Litigation guidelines. This document is the first time the ABA has formally addressed Litigation Finance since 2012. Above the Law details that the ABA document should be viewed as an exercise; a way to frame relevant issues so that conflicts of interest can be addressed before they negatively impact a case. The recommendations should not be viewed as inflexible rules with mandatory enforceability. The broad strokes of the document include documentation, disclosure, professional ethics, and privilege/work product. It’s recommended that there be added clarity between client-funder arrangements versus those between funders and firms. Yet in firm-funder situations, there must also be a clear delineation between individual case funding versus portfolio funding. Regardless of the type of funding, three suggestions made by the ABA document apply. First, all funding agreements should be in writing. The non-recourse nature of the funding, exact percentages promised, and provisions for withdrawal should all be clearly spelled out for the protection of all involved. Second, funders should have no decision-making role in the legal process unless invited by the client. Overall, clients should work with their legal representation to make decisions impacting the case. And lastly, disclosure can be tricky, since there’s still disagreement around the globe about who needs to know what, and when they should know it. Savvy lawyers should presume that the terms of a funding agreement will be examined by an outside party eventually. Overall, these guidelines aren’t encroaching on the use of Litigation Finance. Rather, they seem to be reminding legal professionals of their ethical obligations so the practice can be kept above board.
Commercial

Litigation Funding Fuels Religious Art Dispute

A contentious legal battle between artist Akiane Kramarik and Carole Corneliuson of Art & SoulWorks is well underway. The artist earned worldwide acclaim after an appearance on the Oprah Winfrey show when she was only nine. Since then, her art has been reproduced and sold around the globe. As financial discrepancies emerged and poor reproductions of Kramarik’s work came to light, legal action was taken to dissolve the business relationship and prevent Art & Soulworks from selling more of Kramarik’s work. Bloomberg details Roy Strom’s thoughts on the case. Kramarik has been the subject of movies and has a massive social media following. The business relationship between the Kramariks and Corneliuson lasted more than 10 years—until early 2019. As to what caused the falling out, Strom references an eight-page letter between the parties. It expresses thanks for a long business relationship, while being clear that Akiane Kramarik, now an adult, would be taking the reins of her own career. “The two sides tried to negotiate a wind-down period…ultimately those negotiations were not successful.” Legalist financed the litigation on behalf of Kramarik. A spokesperson from Legalist explained that the case is what they call a ‘David vs Goliath.’ Meanwhile, Corneliuson believes herself to be the smaller, weaker party here, saying her business has suffered without her star artist. Her revenue has fallen 90%. “When people talk about David v Goliath cases, a lot of times the Goliaths they have in mind are blue-chip companies, or other major corporate defendants, the likes of which the US Chamber of Commerce would step in and come to the aid of. Litigation Finance should have rules set around it so that defendants know when they’re up against a plaintiff that’s backed by a litigation finance firm.” Strom went on to explain that Legalist will receive a predetermined percentage of any award the Kramariks receive. The exact percentage will reflect the amount of time that the funding was used. Longer cases reap larger percentages for funders.
Commercial

Rebecca Berrebi of Avenue 33 Discusses the Future of Lit Fin

Rebecca Berrebi is a litigation consultant whose firm, Avenue 33 LLC, provides insight and advice to a variety of clients. Her expertise spans many industries and she has clients across the globe—including Europe, Asia, Africa, Latin America, and North America. Above the Law recently conducted a 3-question interview with Berrebi. This portion covers the future of Litigation Finance, as well as how COVID-19 will impact opportunity in the industry. Berrebi explains that Litigation Finance is changing at lightning speed. The pandemic has inspired many firms to use third-party funding to enhance cash management and monetize litigation assets. In addition, firms are beginning to see the value in using funding for new clients as a way to increase the size of their client base without tying up operating funds in litigation. With this growth, however, comes a demand for increased transparency. This past summer, the ABA released best practices guidelines for lawyers who utilize litigation funding. While these guidelines have not been universally embraced, they do show that industry norms are forming. It seems that the best way to make the most out of third-party funding is to utilize the skills and expertise of someone like Berrebi. Hiring a litigation consultant can provide a strong advantage to firms, litigants, and even creditors. A rise in future funding opportunities is expected in the coming months. In fact, there is already a strong increase in capital that is nicely matched by an increase in requests for funding. COVID-19 has caused markets to become volatile and unpredictable. It makes sense that savvy investors would seek out investment opportunities that are immune to market forces. In addition, economic anxiety and pandemic-related hardship have led to a rise in new litigation. Business closures, contract breaches, and insolvencies are way up. Luckily, the funds are there for those with meritorious cases.