LegalPay, India, and the Promise of Litigation Finance in Emerging Markets

LegalPay is a Litigation Finance startup founded in India, an emerging market for third-party legal funding. Until recently, investing in legal cases was reserved for high-end investors. The advent of LegalPay allows retail investors—those of average means–to take advantage of the potentially large uncorrelated returns that have attracted savvy investors for years.

According to founder Kundan Shahi, LegalPay is the only formal player that offers third-party litigation funding for late-stage cases in India. One can’t help but wonder how this will influence the development of global Litigation Finance? Does LegalPay’s success foretell the rise of litigation funding in emerging markets? 

How Does LegalPay Work?

According to founder Kundan Shahi, LegalPay is a tech-focused, data-driven litigation funder which leverages a 15-point checklist proprietary algorithm in its underwriting process. The use of AI in diligencing cases is nothing new, however, LegalPay differentiates itself by enabling retail investors to commit modest amounts of capital as a means of participating in this uncorrelated asset class. Interest rates are competitive and offer high returns—plus investor and creditor interests are secured by the IBC.

There are other such “crowdfunding for Litigation Finance” platforms on the market, though LegalPay seems to be performing a balancing act between being a tech platform for the masses, and a large-scale commercial funder that invests in mega cap cases (at least, as far as the Indian legal market is concerned). In 2021, for example, LegalPay offered interim financing to Yashomati Hospitals, a private medical entity in insolvency. This is in addition to more than a dozen short-term secured loans to hospitals undergoing insolvency. The funds go toward operating costs and payroll to keep the hospital running from six months up to a year. Ravindra Beleyur explains that the term sheet was finalized in fewer than two weeks from initial contact.

LegalPay’s platform has worked out well for insolvent firms, and perhaps even better for the company’s spate of retail investors. A case involving Brain Logistics demonstrates the difference that backing from LegalPay can make. A bevy of delays and appeals by delinquent debtor Hero MotoCorp necessitated increased funding for Brain Logistics to continue fighting. This was provided by LegalPay, and allowed Brain Logistics to proceed with its claim against Hero MotoCorp. While the case has yet not resolved, it demonstrates how legal funding can expedite proceedings and allow for a more timely application of justice.

In addition to its funding platform, LegalPay aims to create specialized products in insolvency and interim business financing, as well as carve out a piece of the legal funding market in India for itself. For insolvent companies, LegalPay offers short-term lending products that are asset-backed and secured. 

Why is This Especially Important in India?

Though the Indian legal system has been refined in recent years, it is still lacking when compared to that of developed nations. The Supreme Court of India is the de facto head of its unified legal system. Its purpose is to interpret laws and defend the constitution, resolve disputes, and affirm basic rights for citizens.

Today, certain drawbacks of the Indian legal system make justice more difficult to achieve in a timely way. For example:

As far back as 2016, the Chief Justice of India’s Supreme Court implored the Prime Minister to appoint more judges. Government inaction over judicial delays has caused significant hardships in all case types. Bloomberg Businessweek has affirmed that if India’s judges closed 100 cases every hour, 24-hours a day, it would take more than 30 years to clear the current backlog of pending cases. Ironically, there are pending cases from 30 years ago that are still unresolved.

Given the dearth of judges and astronomical wait times, many companies–and even wronged individuals or businesses–are reticent to sue in India’s courts. New cases must work their way up from lower courts, which means they often take years to reach completion. Given all of this, it’s clear that in India today, finding innovative solutions to the old adage “justice delayed is justice denied,” is more important than ever.

Who is Partnering with LegalPay?

The well-documented challenges in India’s legal market may dis-incentivize investors from getting involved in TPLF in India. At the same time, LegalPay is amassing impressive partnerships that will enable it to make offers to companies undergoing insolvency. LegalPay’s Series A funding, a special purpose vehicle, found itself oversubscribed in a short amount of time—demonstrating consumer confidence in the concept and in its implementation.

This first SPV was intended to diversify capital with a portfolio of 8-12 cases, and allowed retail investors to commit as little as Rs 25,000 in a single case. A second SPV will emphasize commercial disputes. These SPVs help investors diversify by investing in a basket of commercial cases that typically generate a pre-tax IRR of over 20 per cent. Incidentally, the entire investment process is digital and seamless, including signing investor documents, KYC, tracking of the basket of claims, and portfolio monitoring and analytics.

Among those partnering with LegalPay is Jumbo Finance, which provides secured interim financing. Managing director Smriti Ranka explained that there are many benefits to investing in distressed debt assets. US hedge fund Hedonova is another LegalPay partner that, according to Shahi, will enhance LegalPay’s plan to aggressively grow its Indian market.

Naples Global is also onboard with LegalPay, launching a $5MM fund that’s expected to protect the interests of founders in the event of disputes among the board. With disputes between founders and investors on the rise, this development may be crucial in attracting new investors and adding a sense of security to the opportunities LegalPay provides.

The current $20 billion legal expense market in India has enabled seed funding led by 9Unicorns and Accelerator VC, along with LetsVenture, and angel investor Ambarish Gupta. Much of these funds will be deployed toward late-stage litigation—currently plentiful given that delays are rampant due to COVID. Also among LegalPay’s list of partners are Amity Technology Incubator and Venture Catalysts.

What’s the Next Step?

How will innovators like LegalPay alter the Litigation Finance landscape? 

The complexities of global litigation funding make predictions like this difficult. As noted earlier, the Indian legal market is full of challenges, as are all emerging markets (heck, even most mature legal markets can be labyrinthine at times). But those challenges keep competitors out of the fray, which means funders willing to take the plunge typically have their pick of the litter in terms of cases. Lack of competition can present itself as a blue ocean of opportunity, as early entrants into the US and UK litigation funding markets can attest. And India certainly has a lot of untapped potential. The prospect of getting in on the ground floor of a maturing legal market that is home to over 1 billion people may be too enticing for some funders to pass up. 

While LegalPay’s emergence may encourage more partnerships between larger funders and retail investor platforms, it’s unlikely we will see funders dive head-first into emerging markets like India any time soon (for example, opening an office in Bangalore). That type of commitment will take time, as there are less risky jurisdictions out there where the TAM has yet to be saturated (like Japan, South Korea and Israel–where Woodsford maintains an office and Validity Finance recently opened shop). 

Yet established funders in Australia, the US and UK would do well to keep an eye on Shahi’s startup, given how its numerous strategic partnerships and technological capabilities enable both large-scale case investment, and promising returns for retail investors. Any company leveraging AI to effectively source and/or diligence cases deserves a second look, and one doing that in an emerging market like India deserves extra consideration. 

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Computer Weekly Provides In-Depth History of Post Office Horizon Inquiry

By Harry Moran |

The Post Office Horizon IT scandal represented not only one of the most significant cases of institutional malpractice and miscarriage of justice in British history, but also catapulted the use of litigation funding into the public spotlight.

An article in Computer Weekly provides an in-depth summary of the statutory public inquiry into the Post Office Horizon IT scandal, giving readers a detailed account of all the key revelations that emerged across the last three years of the inquiry’s work. The feature breaks down these revelations on a chronological basis, starting in May 2022 with ‘phase one’ of the inquiry’s hearings and going all the way through to ‘phase seven’ in September 2024.

The feature explains how each of these seven phases gathered evidence on different aspects of the scandal, beginning in 2022 with phase one hearing testimonies from the victims, and the phase two investigation into the Horizon IT system itself.

Phase three saw the examination of the Horizon system over the subsequent year, whilst phase four switched focus to assess the activities of lawyers and investigators who participated in the subpostmasters’ prosecutions. Finally, the feature guides us through the inquiry’s work this year, with phases five and six putting the behaviour of directors, politicians and civil servants in the spotlight, before concluding with phase seven that took a broader look at the Post Office’s present and future.

Within the feature, readers can find links to individual articles that provide deep dives into each of these individual phases, cataloguing the most important pieces of evidence unearthed by the inquiry’s hearings. 

Community Spotlights

Community Spotlight: Dr. Detlef A. Huber, Managing Director, AURIGON LRC

By John Freund |

Detlef is a German attorney, former executive of a Swiss reinsurance company and as head of former Carpentum Capital Ltd. one of the pioneers of litigation funding in Latin America. Through his activities as executive in the insurance claims area and litigation funder he gained a wealth of experience in arbitrations/litigations in various businesses. He is certified arbitrator of ARIAS US and ARIAS UK (AIDA Reinsurance and Insurance Arbitration Society) and listed on the arbitrators panel of DIS (German Arbitration Institute).

He studied law in Germany and Spain, obtained a Master in European Law (Autónoma Madrid) and doctorate in insurance law (University of Hamburg).

Detlef speaks German, Spanish, English fluently and some Portuguese.

Company Name and Description:  AURIGON LRC (Litigation Risk Consulting) is at home in two worlds: dispute funding and insurance. They set up the first European litigation fund dedicated to Latin America many years ago and operate as consultants in the re/insurance sector since over a decade.

Both worlds are increasingly overlapping with insurers offering ever more litigation risk transfer products and funders recurring to insurance in order to hedge their risks. Complexity is increasing for what is already a complex product.

Aurigon acts as intermediary in the dispute finance sector and offers consultancy on relevant insurance matters.

Company Website: www.aurigon-lrc.ch

Year Founded: 2011, since 2024 offering litigation risk consulting  

Headquarters: Alte Steinhauserstr. 1, 6330 Cham/Zug Switzerland

Area of Focus:  Litigation funding related to Latin America and re/insurance disputes

Member Quote: “It´s the economy, stupid. Not my words but fits our business well. Dont focus on merits, focus on maths.”

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Manolete Partners Releases Half-Year Results for the Six Months Ended 30 September 2024

By Harry Moran |

Manolete (AIM:MANO), the leading UK-listed insolvency litigation financing company, today announces its unaudited results for the six months ended 30 September 2024. 

Steven Cooklin, Chief Executive Officer, commented: 

“These are a strong set of results, particularly in terms of organic cash generation. In this six-month period, gross cash collected rose 63% to a new record at £14.3m. That strong organic cash generation comfortably covered all cash operating costs, as well as all cash costs of financing the ongoing portfolio of 413 live cases, enabling Manolete to reduce net debt by £1.25m to £11.9m as at 30 September 2024. 

As a consequence of Manolete completing a record number of 137 case completions, realised revenues rose by 60% to a further record high of £15m. That is a strong indicator of further, and similarly high levels, of near-term future cash generation. A record pipeline of 437 new case investment opportunities were received in this latest six month trading period, underpinning the further strong growth prospects for the business. 

The record £14.3.m gross cash was collected from 253 separate completed cases, highlighting the highly granular and diversified profile of Manolete’s income stream. 

Manolete has generated a Compound Average Growth Rate of 39% in gross cash receipts over the last five H1 trading periods: from H1 FY20 up to and including the current H1 FY25. The resilience of the Manolete business model, even after the extraordinary pressures presented by the extended Covid period, is now clear to see. 

This generated net cash income of £7.6m in H1 FY25 (after payment of all legal costs and all payments made to the numerous insolvent estates on those completed cases), an increase of 66% over the comparative six-month period for the prior year. Net cash income not only exceeded by £4.5m all the cash overheads required to run the Company, it also exceeded all the costs of running Manolete’s ongoing 413 cases, including the 126 new case investments made in H1 FY25. 

The Company recorded its highest ever realised revenues for H1 FY25 of £15.0m, exceeding H1 FY24 by 60%. On average, Manolete receives all the cash owed to it by the defendants of completed cases within approximately 12 months of the cases being legally completed. This impressive 60% rise in realised revenues therefore provides good near-term visibility for a continuation of Manolete’s strong, and well-established, track record of organic, operational cash generation. 

New case investment opportunities arise daily from our wide-ranging, proprietary, UK referral network of insolvency practitioner firms and specialist insolvency and restructuring solicitor practices. We are delighted to report that the referrals for H1 FY25 reached a new H1 company record of 437. A 27% higher volume than in H1 FY24, which was itself a new record for the Company this time last year. That points to a very healthy pipeline as we move forward into the second half of the trading year.” 

Financial highlights: 

  • Total revenues increased by 28% to £14.4m from H1 FY24 (£11.2m) as a result of the outstanding delivery of realised revenues generated in the six months to 30th September 2024.
    • Realised revenues achieved a record level of £15.0m in H1 FY25, a notable increase of 60% on H1 FY24 (£9.4m). This provides good visibility of near-term further strong cash generation, as on average Manolete collects all cash on settled cases within approximately 12 months of the legal settlement of those cases
    • Unrealised revenue in H1 FY25 was £(633k) compared to £1.8m for the comparative H1 FY24. This was due to: (1) the record number of 137 case completions in H1 FY25, which resulted in a beneficial movement from Unrealised revenues to Realised revenues; and (2) the current lower average fair value of new case investments made relative to the higher fair value of the completed cases. The latter point also explains the main reason for the marginally lower gross profit reported of £4.4m in this period, H1 FY25, compared to £5.0m in H1 FY24. 
  • EBIT for H1 FY25 was £0.7m compared to H1 FY24 of £1.6m. As well as the reduced Gross profit contribution explained above, staff costs increased by £165k to £2.3m and based on the standard formula used by the Company to calculate Expected Credit Losses, (“ECL”), generated a charge of £140k (H1 3 FY24: £nil) due to trade debtors rising to £26.8m as at 30 September 2024, compared to £21.7m as at 30 September 2023. The trade debtor increase was driven by the outstanding record level of £15.0m Realised revenues achieved in H1 FY25.
  • Loss Before Tax was (£0.2m) compared to a Profit Before Tax of £0.9m in H1 FY24, due to the above factors together with a lower corporation tax charge being largely offset by higher interest costs. 
  • Basic earnings per share (0.5) pence (H1 FY24: 1.4 pence).
  • Gross cash generated from completed cases increased 63% to £14.3m in the 6 months to 30 September 2024 (H1 FY24: £8.7m). 5-year H1 CAGR: 39%.
  • Cash income from completed cases after payments of all legal costs and payments to Insolvent Estates rose by 66% to £7.6m (H1 FY24: £4.6m). 5-year H1 CAGR: 46%.
  • Net cashflow after all operating costs but before new case investments rose by 193% to £4.5m (H1 FY24: £1.5m). 5-year H1 CAGR: 126%.
  • Net assets as at 30 September 2024 were £40.5m (H1 FY24: £39.8m). Net debt was reduced to £11.9m and comprises borrowings of £12.5m, offset by cash balances of £0.6m. (Net debt as 31 March 2024 was £12.3m.)
  • £5m of the £17.5m HSBC Revolving Credit Facility remains available for use, as at 30 September 2024. That figure does not take into account the Company’s available cash balances referred to above.

Operational highlights:

  • Ongoing delivery of record realised returns: 137 case completions in H1 FY25 representing a 18% increase (116 case realisations in H1 FY24), generating gross settlement proceeds receivable of £13.9m for H1 FY25, which is 51% higher than the H1 FY24 figure of £9.2m. This very strong increase in case settlements provides visibility for further high levels of cash income, as it takes the Company, on average, around 12 months to collect in all cash from previously completed cases.
  • The average realised revenue per completed case (“ARRCC”) for H1 FY25 was £109k, compared to the ARRCC of £81k for H1 FY24. That 35% increase in ARRCC is an important and an encouraging Key Performance Indicator for the Company. Before the onset and impact of the Covid pandemic in 2020, the Company was achieving an ARRCC of approximately £200k. Progress back to that ARRCC level, together with the Company maintaining its recent high case acquisition and case completion volumes, would lead to a material transformation of Company profitability.
  • The 137 cases completed in H1 FY25 had an average case duration of 15.7 months. This was higher than the average case duration of 11.5 months for the 118 cases completed in H1 FY24, because in H1 FY25 Manolete was able to complete a relatively higher number of older cases, as evidenced by the Vintages Table below.
  • Average case duration across Manolete’s full lifetime portfolio of 1,064 completed cases, as at 30 September 2024 was 13.3 months (H1 FY24: 12.7 months).
  • Excluding the Barclays Bounce Back Loan (“BBL”) pilot cases, new case investments remained at historically elevated levels of 126 for H1 FY25 (H1 FY24: 146 new case investments).
  • New case enquiries (again excluding just two Barclays BBL pilot cases from the H1 FY24 figure) achieved another new Company record of 437 in H1 FY25, 27% higher than the H1 FY24 figure of 343. This excellent KPI is a strong indicator of future business performance and activity levels.
  • Stable portfolio of live cases: 413 in progress as at 30 September 2024 (417 as at 30 September 2023) which includes 35 live BBLs.
  • Excluding the Truck Cartel cases, all vintages up to and including the 2019 vintage have now been fully, and legally completed. Only one case remains ongoing in the 2020 vintage. 72% of the Company’s live cases have been signed in the last 18 months.
  • The Truck Cartel cases continue to progress well. As previously reported, settlement discussions, to varying degrees of progress, continue with a number of Defendant manufacturers. Further updates will be provided as concrete outcomes emerge.
  • The Company awaits the appointment of the new Labour Government’s Covid Corruption Commissioner and hopes that appointment will set the clear direction of any further potential material involvement for Manolete in the Government’s BBL recovery programme.
  • The Board proposes no interim dividend for H1 FY25 (H1 FY24: £nil).

The full report of Manolete’s half-year results can be read here.

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