Litigation Funding or Third-Party Funding (TPF) is a non-recourse funding where a third-party funder bears all of the litigation costs such as litigant’s attorneys’ fees and other costs, in exchange for a share of any potential recovery. If the litigant is successful in its case, the funder receives a portion of its recovery. In the event the litigation is unsuccessful, the funder gets nothing.
One can certainly see a rise in various legal disputes such as insolvencies cases, breach of contracts cases and other commercial disputes due to the pandemic. Litigation Funding or TPF can help loosen up the burden of such businesses that are facing financial hardships due to economic slowdowns to pursue litigation and recover sums owed in genuine disputes.
How Litigation Funding can help revive the Businesses
Litigation Funding or TPF can help the companies to improve their balance sheets. Companies might have genuine value of claims jammed in litigation for several years. Such claims cannot be recognized by the companies in their accounts until it is actually recovered. The expenses incurred in litigation are reflected negatively in company’s profit and loss (P&L) statement as “operating costs”. Litigation Funding can ease the burden of such companies by providing cash flow which will not impact the company’s P&L account. Furthermore, Litigation Funding can aid the companies to generate additional returns by prosecuting such claims that might have been written off.
LITIGATION FUNDING AND MSME SECTOR
MSME is one sector in Indian economy which COVID-19 pandemic has severely impacted. MSMEs are facing cash crunch/lack of liquidity which led their operation to shut down during the lockdown, eventually production was halted, forcing such MSMEs to go into insolvency/bankruptcy. MSMEs are now strained to face legal disputes arising from the crisis. In such a scenario, Litigation Funding or TPF can be a way out to revive such MSMEs by providing funds to recover viable claims stuck in legal disputes.
LegalPay is a home-grown litigation funding and interim financing platform, which helps businesses and individuals to off load their litigation costs.
In one such example LegalPay funded the MSME for its ongoing legal dispute – breach of contract. In the said case, facts were as such: the MSME provided services to a bigger corporation, which had a relatively stronger financial position and after availing the services of the MSME, the corporation did not clear the invoices of the MSME, and attempted to settle the dispute at an amount significantly lesser than what was originally due to the MSME. A breach of contract dispute was initiated by the MSME to recover the invoice-based dues. LegalPay had provided the sufficient funds required from the initiation to the disposal of the dispute to the respective MSME to help it recover the genuine claims from the Corporation. Therefore, litigation financing can come to the rescue of the MSME, whereby the MSME can transfer the risk and cost of litigation to LegalPay.
The knowledge that the plaintiff (the MSME) shall not be forced into accepting a low-ball offer because they now possess the financial resources to effectively contest the dispute in court, shall compel the defendants (the bigger corporation) to offer significantly higher sums for settlement of the disputes, thereby assisting the plaintiff in recovering legitimate dues.
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