Trending Now
Commercial Special Features

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. 

Commercial

View All
Commercial Regulatory Issues

Who Could Regulate the Litigation Funding Industry after the CJC Review?

By Harry Moran |

As funders and law firms await the outcome of the Civil Justice Council’s (CJC) review of litigation funding later this summer, industry experts are opining not only on the potential direction any future regulation could take, but what body would be in charge of this new oversight function.

In an insights post from Shepherd and Wedderburn, Ben Pilbrow looks ahead to the CJC review of litigation funding and poses the question that if some form of regulation is inevitable, who will act as the regulator for these new rules? Drawing upon two previous reports that reviewed the funding of litigation, Pilbrow points out that historically there have been two main bodies identified as the likely venues for regulation of third-party funding: the courts or the Financial Conduct Authority (FCA).

Analysing the comparative pros and cons of these institutions as prospective regulators, Pilbrow highlights that each one has two core contrasting qualities. The courts have the requisite expertise and connection to litigation funding yet lacks ‘material inquisitive powers’. On the other hand, the FCA does not have the aforementioned ‘inherent connection to the disputes ecosystem’, but benefits from being an established regulator ‘with considerable enforcement powers’.

Exploring options outside of these two more obvious candidates, Pilbrow suggests that utilising one of the existing legal regulators may be viable due to the fact they are all ‘largely staffed by lawyers but have regulatory powers.’ However, Pilbrow notes that these legal regulators may have common flaw that would stop them taking on this new role. That flaw being the comparatively small size of these organisations, with the Solicitors Regulation Authority (SRA) still only boasting 750 employees despite being the largest of these legal regulators.

Concluding his analysis, Pilbrow suggests unless the government opts for an expanded system of self-regulation under an industry body such as the Association of Litigation Funders, the most likely outcome is for the FCA’s remit to be expanded to include the regulation of litigation funding.

The full article from Ben Pilbrow can be read on Shepherd and Wedderbun’s website.

Commercial Deals

Omni Bridgeway Announces Final Payment for Acquisition of its Europe Business

By Harry Moran |

In an announcement posted on the ASX, Omni Bridgeway announced that it had completed the final payment for the acquisition of the Omni Bridgeway Europe (OBE) business that took place in 2019. The litigation funder confirmed that 5,213,450 fully paid ordinary shares had been ‘issued in satisfaction of the fifth and final tranche of variable deferred consideration’ to complete the acquisition.

Highlighting the progress of the business over the past six years, Omni Bridgeway said that the European business ‘has been successfully integrated into the global operations of the group, creating the most diversified legal asset management platform globally, covering all relevant civil and common law jurisdictions and all relevant areas of law.’ 

The announcement also revealed that OBE has ‘achieved the defined five-year KPIs in full’, whilst the management team ‘has been fully retained.’

Commercial Deals

Burford Capital CEO Says Litigation Finance Market is ‘Booming’

By Harry Moran |

With the global economy and financial markets in a current state of uncertainty, the stability of litigation funding as an uncorrelated asset class for investors is attracting wider attention than ever.

In an interview with Bloomberg TV, Christopher Bogart, CEO of Burford Capital discussed the current state of the litigation finance market, explained why third-party funding is attractive to clients and investors alike, and addressed the common critiques that are levelled at the industry.

On the enduring appeal of litigation funding to corporate clients, Bogart said that for many CEOs and CFOs the truth is that their companies are “spending too much money today on legal fees”. He went on to say that money spent by companies on legal fees is “not doing anything that advances their core undertaking”, and as a result, “the ability to offload that to somebody like us [Burford] is very valuable.”

When asked about why the litigation finance market is thriving during the global economic uncertainty, Bogart highlighted that all of Burford’s “cash flows come entirely out of the outcome of litigation results and those are independent of what’s happening in the market, independent of what’s happening in the broader economy.” In terms of the future of litigation funding and the potential for the market to continue to grow, Bogart pointed out that between legal fees and litigation judgments there is a “multi-trillion dollar a year global market” and that whilst the industry is already “booming”,  there is still “a lot of room to run here” for litigation funders.

In response to a question on the criticisms of litigation funding and the suggestion that funders may look to prolong the duration of cases, Bogart pointed out that Burford is just like any other investment firm that is “looking for high quality assets that are going to produce a reasonable return in a short period of time.” Bogart emphatically rejected what he described as “false concerns” by opponents of third-party funding, and stated plainly: “we’re absolutely not in the business of being interested in prolonging duration or in bringing forward things that are not ultimately going to yield a good result for our shareholders”.

The full interview can be found on Burford Capital’s website.