Litigation funding is a type of loan but it has some major differences. Let’s find out more.
Not a debt
Companies can get funding to pursue a lawsuit, but these are typically not traditional loans. Instead, there is funding available that is structured as a non-recourse arrangement. This means that it is not classed as debt but is risk capital that is used to support economically viable, strong claims.
This type of funding is often used to cover costs of litigation, including expert witnesses, attorney fees, forensic analysis, electronic discovery, and court fees. Unlike traditional loans which need repayment whatever the outcome, litigation funding from companies such as www.novo-modo.co.uk/litigation-funding means that the plaintiff will not owe anything if there isn’t a recovery as a result of the litigation.
When do companies use litigation funding>
Companies often use this type of funding in cases involving well-capitalised defendants, higher-value disputes over intellectual property, confidential information theft by employees, breach of noncompete or nondisclosure agreements, and trade secret misappropriation. Litigation funding can remove the hesitation from plaintiffs who fear upfront costs and need to cover day-to-day operating costs but have a meritorious claim.
There is a rigorous evaluation process for this funding, however. Funding companies will carry out comprehensive due diligence to ensure that capital is only deployed when there is a good chance of returns. The legal strength of liability will be assessed, as will other factors such as a quantified damages model, the preservation and quality of evidence, and the solvency and collectability of the defendant.
