As the economic impact of the global pandemic intensifies, law firms are implementing a range of measures to try to weather the storm, including pay cuts, layoffs and partner cash calls.
Although it is too early to begin to assess the medium to long term impact of coronavirus on the legal market, some early signals are clear. In the short term, global lockdowns, court closures, the transition to remote working and other economic and social challenges are putting increasing pressure on law firm cash flows and financial reserves. The rounds of pay cuts and furloughs announced by countless major law firms are likely to be indicative of wider challenges to come.
At the same time, history suggests that market volatility often leads to an increase in legal disputes, as was have seen during and after the 2008 financial crisis. Many law firms therefore face the challenge of managing short term cash flow constraints for an unknown period of time, whilst maintaining sufficient resource to be able to respond to spikes in demand for legal services as and when they arise.
For law firm financial controllers considering these challenges, it is worth bearing in mind that litigation finance can sometimes play a useful role in generating additional cash flows, without the burden of more traditional debt facilities.
For example, a law firm with one or more contingency fee matters at any stage in the litigation lifecycle, can use litigation finance to generate immediate fee revenue and potentially to monetise historic work in progress. Such arrangements encompass a single case, or a portfolio of matters and have the advantage of being structured on a ‘non-recourse’ basis, meaning that the firm does not have to pledge any other assets or receivables as collateral.
The same economic pressures affecting law firms are, of course, also affecting corporate clients. Litigation finance is often considered solely as a means of funding legal fees on pending cases (which may in itself be highly relevant in the current environment). However, equally relevant is the possibility of using litigation finance to monetize claims and judgements, raising capital for operating costs during the current crisis, without tapping into lines of credit or increasing debt facilities.
TheJudge Group has now fully transitioned to remote working and is ready to assist law firms and corporate clients with any litigation finance and risk management requirements during the current crisis.