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CFO’s and Litigation Finance: The Time is Ripe for Adoption

February 3, 2023

CFO’s and Litigation Finance: The Time is Ripe for Adoption

One of the holy grails of litigation funding has long been for funders to convince CFOs to view litigation through a commercial lens, and unlock the value of their legal assets. While straightforward and practical, the evolution of the CFO mindset on this issue has been slow to materialize. Many in the litigation funding community blame cultural norms—old habits are simply hard to break, which is especially true when things are going swimmingly. But with inflation upon us and a recession looming, the time is ripe for CFOs to reconsider their firm’s relationship to litigation funding. Research from Burford Capital in June of 2021 found that 75% of companies with over $1 billion in annual revenues reported unenforced judgments worth $20-$100 million in FY 2020, while at the same time, just 24% said they apply quantitative financial modelling to make decisions about litigation, as they do in other areas of the business. That research is now a couple of years old, but it underscores both the need for litigation funding, and the challenge that funders face when trying to convince CFOs to think differently about litigation. Change may finally be afoot. A recent global survey of CFOs conducted by Everest Group found improving cash flow continues to be a priority for a large majority of CFOs. As one respondent noted: “As the business environment continues to throw up shocks prompted by geopolitical uncertainty and sector disruption, CFOs should ensure that, as well as technological evolution, change management becomes a culture rather than a one-off exercise.” Indeed, macroeconomic constraints are forcing CFOs to re-prioritize. Gartner recently identified the Top-10 priorities for CFOs in 2023, based on Deloitte’s Autumn 2022 European CFO survey. The Top-5 among those are:
  • Coping with complex systems
  • Protecting margins and balance sheets
  • Acquiring and retaining talent
  • Raising capital
  • Finding focus
The second point stands out in relation to litigation funding—“protecting margins and balance sheets” is exactly the pitch that funders have been making to the CFO community for years now. PricewaterhouseCoopers conducted its own survey, and highlights the main topics on the CFOs agenda for 2023:
  • Navigate economic uncertainty
  • Enable growth
  • Take action on ESG
  • Accelerate transformation
  • Cultivate finance talent
  • Build trust and purpose
Responses such as ‘navigate economic uncertainty’ and ‘accelerate transformation’ should be music to every litigation funder’s ears. It’s clear based on the above data that litigation funding maintains a product/market fit, in that it addresses some of the core pain points CFOs are currently facing. That said, many CFOs still need to be brought to the table as to how their firms can benefit from the use of litigation funding. Advantages of Unlocking Capital Buried in Legal Claims Susanna Taylor, Head of Investments at Litigation Capital Management, highlights what she considers to be four core benefits of litigation funding for CFOs:
  1. Protecting the value of the business from the cost impact of litigation
  • “If the same case was financed by a third-party funder, then the business will not carry these legal expenses […] The operating profit in each year will be higher and the accounts will be a more accurate reflection of actual business performance.”
  • “Further, once the claim is successful, the company will be able to include the proceeds as profit which has been generated at zero cost.”
  1. Protecting the business from significant litigation risk
  • “The funder carries 100% of the financial risk involved in pursuing the claim and if the claim is unsuccessful, the funder will receive nothing. […] Litigation finance can include the offer of an indemnity against adverse costs and an agreement to meet an order for security for costs.”
  • “Using third-party litigation finance also removes uncertainty in forecasting legal spend, which can be highly variable and difficult to predict.”
  1. Insulating the business from unexpected claims
  • “Litigation brought against a company is an unwelcome consequence of doing business. These claims are almost always unexpected, unbudgeted and require action.”
  • “Importantly it offers the corporate client the opportunity to offset the costs and risks involved in defending claims, as well as allowing the business to apply its capital into growth operations rather than on uncertain litigation.”
  1. Unlocking the value that resides in claims
  • “Litigation finance allows companies to recognize the value in a piece of litigation at a time which suits them best.”
  • “These funds provided to the company can ‘plug the gap’ in expected EBITDA at no cost to the company.”
In an article for Global Banking and Finance Review, Ellora McPherson, Managing Director & Chief Investment Officer of Harbour Litigation Funding, points to the need for CFOs to consider alternative solutions in order generate value, which is especially true during today’s tumultuous economic climate. According to McPherson: “The macroeconomic lifecycle has no bearing on the outcome of disputes and litigation as an asset class itself it has little correlation to the wider market. This means that litigation funders have the capital to pursue meritorious claims at difficult times even when the businesses with the claims do not.” Commercial disputes are often worth tens or hundreds of millions of dollars. These legal claims are simply too valuable as assets not to be leveraged during times of economic upheaval. “It is now no longer a question of whether CFOs can afford to advance these claims,” says McPherson, “but whether they can afford to ignore these assets on their books any longer.” How CFOs Should Approach Funders If CFOs are to be swayed by the high-level arguments posed by funders as to the advantages of legal finance, they must first get comfortable with frontline interactions—what exactly should CFOs expect from a litigation funding partnership? What should they be on the lookout for, and what sets one funder apart from another? The lowest-hanging fruit answer here is cost of capital, but that is obvious. Beyond mere capital requirements, lies a plethora of differentiators which CFOs must account for when approaching and selecting the most appropriate funder for their legal claim (or portfolio of claims):
  • Flexibility. CFOs should select a litigation funder who will be their partner, not just their capital provider. Similar to an agreement with a lender, CFOs don’t want a funder who will balk the moment a curveball is thrown, especially if that curveball comes from somewhere out of your control (as is often the case with legal claims). Funder flexibility and adaptability is an important trait when considering the long-term relationship at stake.
  • Funder Capitalization. Per the aforementioned point, legal claims often take longer than anticipated, or tumble down rabbit holes no one saw coming. Does your funder have enough liquidity to backstop unforeseen circumstances? What is their policy during such a contingency? These are critical questions to ask.
  • Legal Sector Expertise. This is important for two reasons: firstly, so the funder understands the bespoke challenges posed by a given sector and doesn’t get cold feet should the case run up against those issues along the way, and secondly, so the funder can help consult on case strategy, should the claimant and law firm request (most funders are ex-lawyers, after all).
  • Enforcement. Winning a case is one thing, but collecting on the reward is quite another. Does the funder have a track record of enforcing victories—either via a third-party or in-house enforcement team?
  • Reputation. CFOs should consult with past clients to get a sense of how the funder interacts with both the client and the law firm. This is a triangular relationship, and it’s important that all sides work together towards a successful outcome.
Ultimately, Litigation Finance offers an opportunity to monetize what would otherwise remain an illiquid asset, and deploy that capital into a core business activity, thus increasing the enterprise value. That is an invaluable tool for any CFO looking to unlock value without having to resort to traditional capitalization methods, such as approaching lenders or equity partners. The CFO Roadmap Even companies with ample cash to cover attorney fees and expenses can benefit from the instant liquidity provided by litigation funders. Why wait years to unlock the value of a legal claim, when that capital can be put to work immediately? What’s more, the prevalence of litigation funding permits corporations to pursue litigation that they would otherwise leave on the table, and also to reject low-ball settlement offers which they might otherwise accept due to concerns over duration risk and case expense. For CFOs who want to understand if their firm is a strong candidate for litigation funding, there are several steps they can take:
  • Review the company’s litigation history. Have prior legal costs or outcomes influenced management’s thinking about pursuing potential legal matters? Perhaps it is time for a reevaluation of the firm’s approach to litigation.
  • Consult with internal legal staff to identify any matters that may have been deferred for one reason or another, and assess whether those prospective claims might represent strong candidates for litigation funding.
  • Speak with litigation funders or advisory firms to determine a full cost/benefit analysis, including estimates, milestones, duration risk, IRR/ROI potential, and more.
  • Understand the internal resource commitment your team is making, should you take on additional litigation with the help of a funder.
CFOs who follow the above roadmap stand to benefit by repositioning their legal department from a cost center to a profit center. This simple shift in mindset will help strengthen the balance sheet by producing higher net income, lower expenses, and an advancement of business strategies—all without the onerous conditions of a traditional loan.
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Announcements Commercial

Harris Pogust Joins Bryant Park Capital as Senior Advisor

By John Freund |

Bryant Park Capital (“BPC”) a leading middle market investment bank and market leader in the litigation finance sector, is pleased to announce that Harris Pogust has joined the firm as a Senior Advisor.  Harris (Mr. Pogust) is one of the best known and prominent attorneys in the mass tort and class action fields, he was the founding partner and Chairman of Pogust Goodhead worldwide until early 2024 and is currently working with Trial Lawyers for a Better Tomorrow, a charity Harris founded, to help children reach their educational potential all over the world.  Harris’ life work has been to deliver justice for those who have been damaged or injured through the negligence or bad faith of others.

“We are thrilled to have Harris as part of our team.  His knowledge, experience and relationships in the litigation finance sector are of great value to Bryant Park and our clients.  As the litigation finance world becomes more competitive, complex and challenging, having an expert like Harris on our team is invaluable,” said Joel Magerman, Managing Partner of Bryant Park.

Harris’ efforts, in conjunction with Bryant Park will focus on assisting law firms and funders in developing strategies to more efficiently fund their operations and cases and assist them in establishing the right relationships for future growth.  Harris commented, “I have been fortunate to have been a practicing attorney and partner in law firms for over 35 years focused on building and growing a worldwide book of business in the class action/mass tort field.  That required significant capital and throughout my career I have raised over $1 billion for my firms.  I have learned what works and what doesn’t.  I have seen both the risks and rewards in this industry.  I look forward to being able to work with law firms and funders to assist them in putting the right strategies in place with Bryant Park and bringing capital and liquidity to help them grow and flourish.”

About Bryant Park Capital

Bryant Park Capital is an investment bank providing capital raising, M&A and corporate finance advisory services to emerging growth and middle market public and private companies. BPC has deep expertise and a diversified, well-founded breadth of experience in a number of sectors, including specialty finance & financial services. BPC has raised various forms of credit, growth equity, and assisted in mergers and acquisitions for its clients. Our professionals have completed more than 400 assignments representing an aggregate transaction value of over $30 billion.

For more information about Bryant Park Capital, please visit www.bryantparkcapital.com.

Commercial Regulatory Issues

20 Legal Firms and Groups Calling on UK Government for Urgent Legislation to Reverse PACCAR

Despite a government-commissioned independent review recommending priority standalone legislation to reverse PACCAR, the Government has failed to act, the letter to the Lord Chancellor says.

“As a highly respected member of the legal community, the Prime Minister rightly often speaks of ‘following the evidence’.

“The independent experts have provided the evidence that this issue needs fixing, yet this Government refuses to act, delaying justice for some and denying justice for future claimants.

“We call on the Government to act swiftly and legislate for the sake of claimants and the reputation of the UK’s justice system.”

The letter follows earlier calls on the Government from claimants to reverse PACCAR urgently, including from Sir Alan Bates , truck hauliers and the lead claimant in a mass action case against six water suppliers for alleged customer overcharging.

This comes amid a drop off in collective proceeding cases in the Competition Appeal Tribunal this year according to Solomonic, as reported in the Financial Times this morning (link). 

Neil Purslow, Chairman of the Executive Committee of ILFA, said:

“We’ve been warning successive governments for more than two years about the potential impact this uncertainty will have on consumers and small businesses’ ability to access justice.

“These figures show that stark reality. Meritorious claims are going unfunded, alleged wrongdoers are unchallenged and competition - one of the great drivers of growth - is not being enforced.

“The Government must act before this small trickle of cases dries up altogether.”

Martyn Day, co-founder of Leigh Day and co-president of the Collective Redress Lawyers Association (CORLA) which signed the letter, said: 

“This issue has created a great deal of uncertainty that is blocking access to justice for ordinary people taking on powerful corporations accused of wrongdoing. 

“The system simply cannot work without litigation funding, and this is a timely reminder to government to fix this issue, and urgently.”

In July 2023, the Supreme Court ruled in the PACCAR judgment that litigation finance agreements were unenforceable unless they met the requirements of Damages-Based Agreements, rendering many ongoing cases invalid and causing delays in the pursuit of justice for millions of claimants. 

The Civil Justice Council (CJC) concluded its comprehensive review of the funding sector four months ago, after the Government had promised to review what legislation might be needed to address PACCAR once the review was complete. The CJC’s review urged priority standalone legislation to reverse the damaging effects of PACCAR. Yet, despite earlier promises, the Government has said the review would merely “help to inform the approach to potential reforms” in “due course”. 

The letter highlights how the Government’s continued inaction contradicts the Prime Minister's own commitment to "following the evidence”.

The signatories, representing firms including Mishcon de Reya, Stewarts, Freeths, and Scott+Scott UK, highlight the “pivotal role” of group actions. They call on the Government to “act swiftly” to adopt the CJC’s recommendation to reverse PACCAR to protect the reputation of the UK’s justice system. The firms also include those who have provided legal representation for Sir Alan Bates, hauliers ripped off by truck manufacturers (link), and leaseholders fighting secret insurance charges (link).

Since the ruling, crucial investment into the UK economy is rapidly being lost. Litigation funders like Burford Capital are taking their funds elsewhere, with CEO Chris Bogart, stating his firm has begun ‘migrating some dispute resolution away from London’, following PACCAR. 

Litigation funding enables claimants with limited means to access justice, enabling landmark cases including those brought by the subpostmasters, retail workers, and small business owners, to hold multinational corporations accused of serious wrongdoing to account, while promoting fair, competitive markets and securing investment into the UK.

--

Below is the letter to the Lord Chancellor, in its entirety:

Rt Hon David Lammy MP
Lord Chancellor and Secretary of State for Justice
Ministry of Justice
102 Petty France
London
SW1H 9AJ

Dear Lord Chancellor,

Congratulations on your new role as Lord Chancellor and Justice Secretary. While we recognise the many challenges you'll face stepping into this role, we wanted to highlight a critical issue that is undermining access to justice and stifling investment in the UK's legal system. But it's an issue with a quick and simple fix.

Group actions in the UK play a pivotal role in enabling individuals to come together to bring claims against those accused of wrongdoing - often multinational corporations with significant resources. It has helped claimants like the subpostmasters, shopworkers, retail investors, and small business owners access justice.

The regime is underpinned by claimants’ abilities to access finance - often through litigation funding where funders provide financial backing for an agreed return of any settlement. However, as you know, the future of this mechanism and the regime is under threat thanks to the disruptive effects of the 2023 PACCAR judgment, and subsequent challenges to the enforceability of funding arrangements.

Claimants with limited means are struggling to access funding to bring their cases, and investment from funders is draining away from the UK legal system.

The Government promised to review what legislation might be needed to address PACCAR once the Civil Justice Council’s review had concluded. 

The CJC reported back 4 months ago with a thorough and nuanced perspective on the funding sector. As members of the legal community, we are sympathetic to sensible reforms and are reassured that the Government is considering these carefully. 

But one unequivocal and pressing recommendation from the CJC was for urgent standalone legislation to reverse the effects of PACCAR to end the uncertainty damaging access to justice. Disappointingly, the Government has so far failed to hear that call, saying only that the review would “help to inform the approach to potential reforms” in “due course”, despite its previous promises.

As a highly respected member of the legal community, the Prime Minister rightly often speaks of “following the evidence”. The independent experts have provided the evidence that this issue needs fixing, yet this Government refuses to act, delaying justice for some and denying justice for future claimants. 

We call on the Government to act swiftly and legislate for the sake of claimants and the reputation of the UK’s justice system.

Signed

The Collective Redress Lawyers Association (CORLA).
Stewarts
Group Actions & Competition, Stephenson Harwood
Scott+Scott UK LLP
Backhouse Jones
Freeths 
Humphries Kerstetter LLP
Mishcon de Reya LLP
Velitor Law
Milberg London LLP
Fladgate LLP
Geradin Partners
Harcus Parker
Tim Constable, Bates Wells
Phi Finney McDonald
Keidan Harrison LLP
Asserson
Leigh Day
Cooke, Young & Keidan LLP
KP Law

Commercial People Moves

Shai Silverman Departs CAC Specialty, Joins Litica as U.S. Head of Underwriting

By John Freund |

After four years helping to build CAC Specialty’s contingent risk insurance practice from the ground up, Shai Silverman is departing the firm to join litigation risk insurer Litica as its Head of Underwriting – U.S.

In a LinkedIn post, Silverman reflected on his time at CAC, where he joined in the early days of the firm’s efforts to turn contingent risk insurance into a mainstream product. Alongside colleagues Andrew Mutter, Michael B. Wakefield, and David Barnes, Silverman helped develop insurance solutions for a wide array of legal risks, crafted bespoke products for hundreds of clients, and played a key role in launching the first-ever contingent risk insurance conference.

Silverman now moves to Litica, a UK-headquartered specialist insurer focused on litigation and contingent risks, to lead its U.S. underwriting function. His move signals not just a personal transition but also the growing transatlantic ambitions of insurers operating in this once-niche corner of legal risk.

Silverman’s departure marks a broader inflection point for contingent risk insurance—a sector now poised for significant expansion. As underwriting talent like Silverman shifts into leadership roles at specialist firms, questions emerge around how traditional insurers will respond, and whether contingent risk insurance will continue its trajectory toward becoming a standard risk-transfer tool for litigation and arbitration.