Maurice MacSweeney, Director of Litigation Funding at Harbour
Many business owners and entrepreneurs across the world will look back at the economic turmoil of the last 12 months without an iota of positivity. For a large number, it will have represented the harshest economic environment in their company’s lifetime and they will be looking at the next financial year as an opportunity to reverse their misfortunes and balance the books.
Indeed, in the UK the ONS continues to report an increasing number of people losing their jobs whilst two thirds of businesses are at risk of collapse. Throughout the pandemic, many UK companies have taken emergency loans from the Government, and as the Chancellor announces his post-Coronavirus fiscal recovery plan, many businesses will be looking inwards and asking: how can we adapt in order to make sure we thrive?
One solution comes in the form of litigation.
Litigation has previously been associated with negative consequences, such as potential reputational damage and a drain on business resources. However, the trend is for many corporates to now look at unrealised litigation as an asset in light of tumbling traditional revenue streams. The sources of unrealised claims are often apparent but overlooked, and include unpaid debts, breaches of contract, patent infringements and the like. During more ‘normal times’, a combination of risk-aversion and the possibility of losing at trial could lead businesses – particularly SMEs – to avoid pursuing claims. But these are not normal times.
So why would a business pursue expensive litigation when it is already struggling due to the pandemic? The answer is provided by the option of litigation funding, which can be an essential tool for CFOs in transferring the associated costs of litigation to someone else’s balance sheet. Although this is a time of unprecedented economic turmoil, litigation often experiences little correlation with the wider macroeconomic landscape. And this means that even during a time of relative economic hardship, when many businesses lack the required funds to litigate, litigation funders still have access to significant capital to back good claims.
The concept of litigation funding is simple. In return for a pre-defined share of any proceeds obtained, the funder pays the costs of the litigation, without taking over the running of the claim. This allows a business to focus on winning its claim, without the pressure of mounting legal bills. In other words, access to justice. Litigation funders can provide funding for all of the legal costs required to pursue a claim, including the burden of paying the defendant’s legal costs if the claim is unsuccessful. And the funding is non-recourse, meaning the funder only gets paid if the claim is successful, and then only if damages are actually recovered from the defendant. A company with a fully funded claim can free up capital to be deployed on business operations, rather than on legal bills.
Earlier in the year, we saw the tangible benefits of litigation funding to businesses who had purchased business interruption insurance policies to cover losses caused by, amongst other things, the outbreak of a so-called “notifiable disease”. Harbour’s funding helped businesses to participate in high-profile litigation, spearheaded by the FCA, concerning whether or not certain insurance policies should respond to losses caused by the coronavirus pandemic.
The Supreme Court’s landmark decision, which is said to impact on claims for at least £1.2bn in compensation for business interruption losses, brought good news to many SMEs hit hardest by the pandemic. Harbour funded a number of those SMEs, offering them a lifeline to secure compensation without having to pay a penny in legal fees themselves.
Whilst Harbour’s involvement in this landmark decision marks one of the clearest examples of how litigation funding can help businesses recoup some of the losses incurred due to the pandemic, other avenues remain. Whether it be support in recovering assets from suppliers or contractual disputes with customers, litigation funding provides the opportunity, without cost or risk, for businesses to pursue cases they otherwise would not be able to afford.
In the round, it is Harbour’s business to view litigation as an asset class, and in time, we believe more CEOs and CFOs will do so too. With redundancies and insolvencies skyrocketing in the UK and beyond, litigation funding provides an option to bring good legal claims which could help benefit the overall financial position of cash-strapped companies seeking to survive and recover from this awful pandemic.
