February 1, 2019
Litigation doesn’t have to be a cost drain on your company.
KEY TAKEAWAYS:
- Plaintiff-side litigation and other legal receivables are assets that a company should be able to monetize
- Traditional financial institutions are unwilling to assign a value to legal assets, which has left corporate America with untapped assets
- Legal finance addresses this market inefficiency and helps companies unlock liquidity
Legal Claims Have Value
If you’re in-house corporate counsel you’re probably used to hearing that your legal department is a cost center. Your company’s C-Suite in particular may view litigation as an unwanted liability.
Who can blame them?
Litigating requires considerable cash outlays to cover legal costs, but its detrimental business consequences often go beyond immediate expenditures. Significant pending litigation as a plaintiff or defendant can negatively impact a company’s creditworthiness or make it more difficult to raise capital. Capital is diverted from company projects to pay legal costs. In other words, suing and being sued is a drag on a company’s core business activities.
It doesn’t have to be that way.
The idea that litigation is always a liability is based on the outdated refusal of traditional financial institutions to assess and value legal claims. At Validity, we recognize that legal claims can hold tremendous financial value, and we believe they should be treated that way.
A company should be able to monetize its legal receivables just as it would any other asset.
Untapped Assets
Imagine your company is pursuing a meritorious, high-value lawsuit against a solvent defendant. As in-house counsel you are familiar with the case and know there is an excellent chance your company will eventually recover a large damages award.
The lawsuit holds the same potential value as any other contingent asset – but good luck trying to borrow against it. Your company’s bank will see the ongoing case costs expensed in your financial statements. It won’t see the pot of gold at the end of the rainbow. Nor will it take your word, nor your outside counsel’s word, for your company’s chances of prevailing in the case.
The unwillingness of banks and other capital providers to value legal claims is well-settled but nonetheless perplexing. After all, the banks’ revenue often depends on valuing other types of contingent or illiquid assets, including uncollected sales receivables, privately-held restricted stock and far more exotic property.
It comes down to a lack of expertise. Valuing litigation and other legal receivables requires specialized knowledge that few financial institutions have or are willing to acquire.
The result is a market inefficiency that capital providers created, for which companies pay the price. As a consequence, many American companies carry significant untapped assets on their balance sheets.
Legal Finance
Corporate legal finance offers a way to address this problem. Available in the American market for just over a decade, the industry’s popularity today is surging as companies begin to recognize the exciting new capital opportunities legal finance creates.
Legal funders like Validity have deep expertise in assessing and investing in cases at all stages of litigation. Whether you have a final but uncollected damages award, a damages judgment your opponent is appealing, or a meritorious claim in progress or not even filed yet, Validity can value all of these legal assets.
We provide non-recourse funding based on the assessed value of those legal assets – that means you owe us nothing if the case or collection action doesn’t turn out the way we anticipate.
While legal funding is typically used to pay for legal costs, the capital can be used for much more. In terms of its use, legal finance has the same flexibility as a traditional bank loan or capital infusion. You can employ the proceeds from a deal with Validity for any acceptable business purpose, from marketing a new product, investing in customer service, or simply making payroll. At Validity, our goal is to help you unlock the value of your legal claim to help your company – in litigation and in business.