Third party funding during long-term Covid: Is it a remedy for companies’ claims?
Given the uncertainty as to when and how the long-term Covid pandemic nightmare will end, companies are trying to mitigate this crisis’s consequences by adopting cost restriction and capital preservation measures. The aim is to reserve financial resources to meet primary needs. However, it is foreseeable that the continuous overhanging threat of the pandemic and new restrictions will continue to generate a significant increase in litigations. Numerous companies will find themselves unable to meet their contractual obligations or will prefer litigation to avoid investments which no longer interest them.
In this context, should companies “forget” their justified claims because they do not have the means to meet the costs of proceedings, or should they spend part of their limited resources to an uncertain outcome?
The truth is that companies can rely on a viable alternative that allows them to pursue their claims without having to spend economic resources: third party funding. In other words, they could work with an investment expert willing to bear the costs of litigation in exchange of a portion of the outcome. On the one hand, the company files the claim. On the other, the third party fund provides the financial resources to face its costs and takes part of any winnings.
Third party financing has been around for a long time. But whereas before it constituted an additional option for companies, Covid-19 has made it the only possible alternative when considering many claims.
This is generating a significant increase in the available funds for eligible cases. Accordingly, funders will adopt a more selective approach, showing interest only in the most economically and prestigiously attractive cases.
Hence, companies wishing to benefit from this alternative must be extremely cautious when presenting their case. They will want to attract funders’ attention from the very beginning. Funds will have multiple investment opportunities and will chose some and reject many others, sometimes without even having the time to study them thoroughly. Therefore, an excellent assessment of the elements of a case that must be highlighted will be decisive to broaden a company’s options to secure third party funders.
In addition, it is also very important to know what specific funds the case should be offered to. Nowadays there are funds of all varieties. Some have a general approach and fund all types of cases whilst other specialise in certain geographic areas (e.g. Latin America) or certain sectors (construction, engineering, etc.). So it is important to know who to approach in the first place and reach out to the appropriate fund to not waste time in presenting a case that may not be of interest.
Lastly, it is not uncommon for funds’ terms and requirements to become more stringent as demand increases. We suggest not being rushed into accepting the first offer made, but rather to survey the market and compare several options and then chose the most beneficial one without losing sight of the markets standard conditions.
Ultimately, third party funding has become an attractive option for a lot of companies during the long aftermath of Covid-19. Appropriate advice, however, should be sought when handling this product to secure a successful result. Otherwise, clients may lack the financial resources to bring the claim despite an otherwise solid grounding.
Antonio Bravo is a partner at Eversheds-Sutherland and was chair of the International Bar Association’s Litigation Committee from 2009 to 2012.