Best practices for building an effective recovery program

More companies are now adopting affirmative recovery programs to manage costs and maximize value. Over half of businesses in the 2024 Litigation Economics Survey report that their companies have recovery programs or intend to develop one. 

Although in-house lawyers may be familiar with the concept, many remain unsure of how to put a recovery program in place and how legal finance can support those efforts. Below, we address key considerations for developing a successful recovery program. 

Why companies pursue affirmative recovery programs 

In recent years, companies have trimmed legal spend and asked in-house lawyers to do more with less—and research suggests legal costs are only continuing to grow. Recovery programs can be a cash-generating tool by which legal departments can add quantifiable value to their organization and offset other unavoidable legal costs—sometimes dramatically so. One-off proactive litigation on its own can have little material impact on the bottom-line of a large company. However, when pursued programmatically and in the aggregate, it can effectively bankroll the legal department given the proceeds that can be recovered. 

 Affirmative recovery programs are not new, large pharmaceutical and technology companies have long pursued patent claims to protect their intellectual property. Today, household brand names like Coca-Cola, Ford, Tyco, Michelin, The Home Depot, Keurig Dr. Pepper, Standard Life and CNH Industrial are increasingly pursuing recoveries from insurers, suppliers and business partners. Effectively, legal departments are transforming from a cost center to a profit center. 

Key considerations for building recovery programs 

For legal departments that have never pursued affirmative matters, a successful recovery program should be based on a few simple principles. 

Develop a strategy 

Understanding the business is the first step to building a recovery program. Lawyers must identify departments with valid claims and recovery opportunities, guiding colleagues who lack experience in proactive litigation. A strong recovery strategy should be built on a clear business plan which models financial scenarios and sets goals.   

Legal departments should collaborate with colleagues to ensure that recoveries do not negatively impact key business relationships. Relevant stakeholders, both inside and outside of the legal team, should carefully consider the value of potential litigation in relation to relationships with vendors, partners or suppliers.  

Select appropriate cases 

After assessing the organization’s opportunities for recoveries, legal teams should prioritize the most high-value matters. Those with significant damages that are likely to resolve relatively quickly and thus cost-efficiently are particularly good targets. Common areas for recoveries include: Breach of contract claims, insurance recovery claims, intellectual property claims and antitrust claims. 

Appoint the right counsel  

High-risk, high-reward recoveries often require outside counsel with specialist litigation expertise in the types of matters being pursued. Legal teams should consider counsel with experience in both pursuing and defending these types of matters, as such counsel are best positioned to be effective. In situations where a company can seek recovery as part of a class action, the legal team should weigh the convenience of remaining in the class against the benefits of opting out. Opting out provides greater control over the legal process and often results in significantly higher financial recoveries.  

Garner internal support 

Recovery programs represent a shift for most legal departments and the companies they serve—so education and communication are key. In-house lawyers should engage internal stakeholders who may have reservations about dedicating additional resources to the legal function to pursue affirmative recoveries, or the impact of litigation on business relationships and priorities. Creating internal dialogue with colleagues on how proactive litigation can both identify potential roadblocks and set forth a path to garner support for the program.  

CFOs often welcome legal finance because it allows the legal team to maximize recoveries without increasing company costs. As explained by the general counsel of a global food and beverage company: "[Legal finance] allowed the CFO to time recoveries as necessary and utilize those funds for company investments."  

The role of legal finance in affirmative recovery programs 

Legal finance is an important tool for companies that wish to initiate or improve a recovery program. In essence, a legal finance provider like Burford is an expert in valuing legal risk and has the capital to shift risk from a company’s balance sheet to its own. For example, a Fortune 500 company recently secured a $325 million monetization facility from Burford, using high-value litigation claims as collateral to boost liquidity and augment the company's affirmative recovery efforts. Thus, for a variety of reasons, legal finance can help companies jumpstart their recovery programs. 

Offload the cost of a recovery program 

By working with a legal finance provider, a company can offload the cost and risk of pursuing claims in a recovery program. Typically, capital is provided on a non-recourse basis with the funder paying litigation cost and/or accelerating a guaranteed financial result ahead of the resolution of the case in exchange for a portion of a future recovery. In the event of a loss, the funder is owed nothing as it has no recourse against the company to recoup its initial investment or return. This shifts the upfront costs and downside risk of a recovery program to the funder, ensuring that the recovery program is effectively supporting the company’s financial goals. Burford can also offer portfolio-based capital facilities that offset the cost of multiple recovery matters simultaneously; these portfolios can include both affirmative recoveries as well as defense matters. 

Prioritize high-value matters 

As experts in valuing legal risk, a legal finance provider can help a company with multiple potential recoveries to prioritize the matters that are most likely to yield the most positive results as quickly as possible. Given the need to marshal internal support for a recovery program, this ability to set priorities in a quantitative way—and show results—is key. 

Add value beyond capital—without ceding control 

Companies that work with a world-class legal finance provider like Burford get a long-term partner that can provide practical insights throughout the lifecycle of a case, offering valuable insights to help evaluate the viability of litigation and set priorities pre-investment and maximize value post-investment. It is essential to note that legal finance providers are passive investors, meaning they do not exert control over the legal assets in which they invest, except in extraordinary circumstances. Stated simply, companies working with Burford can rest assured that legal finance does not alter control over litigation and settlement. 

Making the business-forward choice 

As affirmative recovery programs become increasingly commonplace, savvy legal teams will be prepared to proactively recommend such programs to their organizations. In most cases, programs will start out small and grow as early wins help prove out the concept and convince internal stakeholders of the merits. Legal finance can help legal departments seamlessly transition from cost centers to value generators using recovery programs—without taking on added uncertainty or risk. 

This article was originally published on Burford’s website on January 29, 2020 and was updated on August 29, 2024.