Litigation funding shifts the financial burden of a dispute to a specialist funder. Instead of paying legal costs as the case progresses, the claimant only pays the funder if the claim succeeds. If the case is lost, the funder absorbs the cost and the claimant owes nothing.
In the UK, the concept was introduced in the mid-20th Century. Initially controversial, it was disapproved of by leading members of the judiciary, who feared that third-party funders might manipulate the process for their own financial gain.
However, in the 1990s legislation to improve access to justice opened the door to litigation finance and it has since developed into a mode of flexible funding offered by several firms such as https://www.novo-modo.co.uk/litigation-funding.
Here are five of today’s most common motivations for seeking litigation funding.
Transfer of risk
The claimant avoids staking its own capital on an uncertain outcome.
Cash flow concerns
Litigation funding protects cash flow. Businesses can pursue substantial claims without diverting working capital or taking on additional borrowing.
Greater access
It promotes access to justice by enabling individuals and SMEs to take on larger, better-resourced opponents.
No impact on corporate debt
Funded cases are typically treated as off-balance-sheet, helping preserve important financial ratios because the arrangement is not recorded as conventional debt.
Claim validation
The fact that a third-party is willing to support a case suggest it has some validity. A professional investor’s involvement can send a strong signal about the strength and value of the claim, often improving the claimant’s position in settlement discussions.
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