Litigation is a risky and expensive endeavour.
Over the past decade, litigation funding has become an increasingly enticing financial alternative for individuals, companies and lawyers who want to share risks and costs attached to litigation. It has, in many ways, facilitated access to justice by introducing a source of capital to use directly and exclusively for litigation.
- Myth 1: litigation funding is a fancy name for an ordinary loan.
Fact: In most cases an ordinary loan needs to be repaid to the lender. In litigation funding, the plaintiff only pays the funder if the case is successful. If the case does not end successfully, the plaintiff walks away with no payment obligations (non-recourse funding).
- Myth 2: litigation funding is complex.
Fact: The core of litigation funding is quite simple. The funder offers to pay all litigation expenses in return for a share of the recovery and the plaintiff faces no economic downside in case of defeat. At Deminor we can close deals and offer funding in 4-6 weeks subject to receiving the necessary documents to conduct our internal due diligence.
- Myth 3: litigation funding encourages meritless cases.
Fact: Providing plaintiffs with non-recourse funding is thought by some to encourage the number of frivolous cases introduced in the court system. This is far from true. At Deminor we seek to invest in claims that have a high chance of success. Devoting our resources to a successful claim requires us to conduct a thorough and detailed due diligence process. As much as a wall street wizard would not purchase a shell share; a reputable funder cannot fund a meritless case. If the plaintiff loses, the funder does too.
- Myth 4: litigation funding is only for plaintiffs with limited resources.
Fact: Successful companies can profit from legal finance as much as individuals with limited resources. Litigation funding allows successful businesses to remove the downside and uncertainty associated with litigation from their P&L, while keeping a significant portion of any potential recovery.
- Myth 5: litigation funders take decision-making powers away from plaintiffs and legal advisors.
Fact: At Deminor, we offer plaintiffs and lawyers several options regarding the extent of our involvement in a case. If desired, Deminor can take a lead role in the litigation or it may also defer the key decision making to the plaintiff (acting as a passive investor). At Deminor we believe that the interests of the funder should always be aligned with the interests of the claimant and the legal advisors. If the case is successful, everyone wins.
- Myth 6: litigation funding is limited to the provision of legal expenses.
Fact: Legal finance can be deployed in the benefit of a company or individual in a multitude of forms. The specific necessities of each plaintiff or the industry concerned will determine the different scenarios in which a funder may step in.
Written on January 28, 2020 by
Legal Counsel of Deminor Recovery Services.
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