Unleash The Power Of Litigation Finance: A Comprehensive Guide

Litigation finance in the United States involves using a legal claim as collateral to get funding from an external party. This party, known as the funder, provides financial support to the claimant in return for a stake in the case’s outcome.

Typically, this financing is provided in such a way that the lander will not receive anything other than the collateral.

It means the funder only gets a return if the case is settled or results in a judgment collection. In the event of an unsuccessful case, the claimant is not obligated to repay the funder.

What Is Litigation Finance?

Litigation finance is becoming widely famous worldwide. This financing type is a go-to option for individuals as well as businesses to opt for secure financing. But what exactly is litigation finance?

The concept of litigation finance is a thrid party financier that provides financial resources along with the claimant.

Let’s say you have a string case, and you don’t really have that much money to fight the case. That is exactly when litigation finance comes into play. It is more like getting a partner for your lawsuit.

And here’s exactly how it works: when you do not have the monetary resources to fight a legal case, a third party, which is usually a company, proceeds to invest money in your case. These third parties cover all types of legal fees along with the other costs. Once you win, they get a percentage of exactly what you won.

It might make you feel like you are making a deal with the devil, but there are people who have a good case, and they lack funds. Litigation finance helps to give everyone a chance to fight for justice, no matter what is financial situation is.

Litigation Financing Categories

Third-party litigation funding has two primary categories: “consumer” and “commercial.” These categories differ significantly in their nature and scope.

Commercial Litigation Financing

In most cases, commercial litigation finance in the US is a non-recourse in any significant legal dispute. Additionally, money from founders of litigation may be employed to assist or enforce a range of legal actions.

These actions include contract disputes, business legal disputes, international arbitration cases, and more.

Besides, these agreements involve knowledgeable claimants whom attorneys represent. They also have previous expertise with arbitration or litigation.

Within litigation financing, there are several distinct financial arrangements:

• Single-Case Financing. This type of litigation financing is intended to help a single court action or engagement. It provides funding for legal costs.

Significantly, the return of these monies depends on the case’s outcome. It’s either the one that claims or the one that funds the loan can agree on a suitable non-recourse return structure.

• Portfolio Financing. It’s designed to offer financial support for multiple legal battles or arbitrations, whether for a company or a legal firm. In the context of a law firm’s portfolio, the funder’s investment and returns are sourced from the fees.

This is collected by the firm from one or more cases within the portfolio. Portfolio funding can also be applied to financing cases of the defense side.

• Multi-Party Financing. This type of funding is available primarily in non-US jurisdictions. It is commonly referred to as litigation, which monetarily aims for class options or group claims.

Multi-party involves providing financial support for legal actions against the defending party in the case. Moreover, multi-party financing is more prevalent in regions like European jurisdictions and even in Australia.

Consumer Litigation Financing

Just like commercial funding, it is a non-recourse monetary advance. The ones who are pursuing personal injury claims and other related legal proceedings are eligible for consumer litigation financing.

In most cases, you get the reimbursement of the risk capital with litigation costs. But only if the plaintiff is successful in getting money from their legal claims.

Individual claimants who get consumer finance are those who have no prior legal training. Also, those are frequently not represented by counsel throughout the funding process.

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What Can You Hope From Funder Of The Litigation

A litigation funder mainly finances the litigation cost in exchange for shares when the claimant receives recovery through the proceedings. When seeking litigation finance, here’s what you can expect in the process:

Term Sheet

First, if mutual interest exists, the funder may propose a term sheet outlining the potential financial terms of the investment. The nature of the term sheet can differ among litigation funding firms.

Portfolio Analysis

Secondly, the collection of the primary information and documentation, the litigation funding firm makes an analysis.

The primary goal of litigation finance is to determine if the case aligns with the criteria of funders’ finances. You can also involve a high-level review of the merits of the case. The depth of this analysis can vary based on the funder of the loan amount, the case’s complexity, and the parties.

Non-Disclosure Agreement (NDA)

Thirdly, the process typically starts with the signing of a non-disclosure agreement (NDA). It’s where you protect confidentiality. This is also where to facilitate the exchange of information among the claimant, lawyers, and the funder. An NDA allows the funder to thoroughly assess the merits of the legal dispute.

Due Diligence

Reputable funders do extensive due diligence into the opportunity of investment, delving into the following:

• Claims Merit.
• Potential Damages.
• Settlement Prospects.
• Capital Required For The Case.
• Claimant’s Background.
• Financial Position.
• Capabilities Of The Legal Team Handling The Case.

The due diligence process depends on the firms. This may also involve in-house investment teams or outside counsel and advisors.

Funding Decision

The timeline for the period of diligence differs but typically takes weeks to complete.Often determines whether to invest or not based on a presentation by the proposing team.

If the cases’ merits stand in support of the recommendation, the funder proceeds with the investment. This provides the funding agreement of the litigation (LFA) for review.

Wrap-Up

Currently, the federal government, arbitration, and most American states allow litigation financing.

The majority of transactions involving commercial litigation finance are for corporate plaintiff lawsuits. The majority of commercial lawsuit finance providers do not offer traditional loans. Instead, solutions are designed as non-recourse investments.

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