What expenses can litigation financing be used for?
Capital to fund commercial cases can be provided at any stage of the litigation process and can be used to cover a range of fees and expenses. These typically include:
- Lawyer fees and expenses of a lawsuit
- The costs of insurance related to a proceeding (for jurisdictions where “adverse costs” can be awarded to the defendant)
- To monetize a claim
- Provide working capital to a law firm secured by the results of a pool of contingent fee matters
- Provide working capital for the plaintiff company in the even they have a strong case, but require working capital to continue operations (this is more of an exception than a rule)
Funding is most often made in the form of a non-recourse investment in exchange for a portion of the settlement or award, should the case be successful. Should the case be unsuccessful, the funder loses its investment. The cost of capital, therefore, is priced to reflect the risk of total loss to the funder.
Funders often provide financing across a portfolio of litigation matters, enabling businesses to manage risk associated with multiple actions. Funders’ terms for portfolio financing vary widely, depending not only on the strength and stage of the underlying cases, but also whether a transaction would be based on the outcome of only one case or a pool of cases. High risk matters such as international arbitration, insolvency, and patents are particularly amenable to portfolio financing.