Impact of Covid-19 on litigation funding. Although litigation funders did not foresee a global pandemic, some of them were ready to deal with it.
Recently, several law firms and companies have approached litigation funders to assess the possibility of selling or funding legal proceedings related to insolvency or pre-insolvency situations.
Likewise, in recent months there has been a surge of companies interested in obtaining liquidity through litigation funding and through the monetization of their judicial proceedings or arbitrations.
Seen from this perspective, it might seem that Covid-19 will increase the business of litigation funders. But all that glitters is not gold, at least as far as specialist funders or complex litigation funds are concerned.
Above all, because the risks arising from the pandemic are spreading to all economic sectors. Any investment in legal proceedings that a few months ago might have a low risk from the point of view of the solvency of the defendant, now has a much higher risk.
Except in exceptional cases such as claims against the public administration or financial institutions, the risk that the amounts claimed may not be collected has increased greatly.
The slowdown in the administration of justice resulting from the temporary suspension of court deadlines and hearings, as well as the multitude of claims that will be filed as a result of the pandemic, must also be taken into consideration. This will impact on the average duration of legal proceedings, negatively affecting the profitability of the funds.
In the light of these circumstances, litigation funders must adapt their economic-financial models to this new reality and must act with caution and increase their diligence when carrying out due diligence processes on potential investments.