Essentials of asset recovery: How to build a winning strategy

The full value of litigation judgments and arbitral awards is rarely paid out in full to claimants. Burford’s  2016 Judgment Enforcement Survey demonstrates that 58 percent of surveyed corporates have not secured the full face value of a judgment or arbitral award in the last five years.

Ending years of dispute, only to find you are left with a judgment on paper but no immediate prospect of recovery, is a horror scenario few choose to contemplate. As such, it is an issue often engaged with too late, and often then begrudgingly, or without the will to fully see it through.

It is our view that monetizing a judgment through asset recovery requires a clear understanding of your goals, a cogent plan, and the will and the means to see it to fruition. The work required is generally multi-faceted, encompassing human inquiries, detailed public record research, the establishment of a legal strategy tailored towards multiple jurisdictions, creative problem solving, and a little luck.

Every recovery scenario is different, but the below provides a flavor of what you should be considering.

Building a successful asset recovery action plan

There are a few simple steps that can be taken during proceedings that will make recovery easier—and help ensure claimants receive the damages owed to them:

1. Above all, act early

If you can, act pre-judgment. Conduct your investigation before the judge rules. The best way to avoid having an unfulfilled judgment, is to pre-empt the problem. Begin your investigation into your opponent early, and weigh the evidence to assess if there are grounds for injunctive relief or similar legal remedies. In particular, in some jurisdictions, demonstrating that the defendant is dissipating assets during proceedings is crucial to secure freezing orders—and this can only be demonstrated by monitoring assets during proceedings. (Of course, demonstrating asset dissipation in court also aids the claimant’s case.)

Once the worst has happened, however, and you are in the position of having to pursue your judgment debtor, you’re going to need to know, and do, the following:

2. Identify the Assets

This can be a substantive piece of work in and of itself, and is generally the cornerstone of any effective asset recovery strategy. A proper asset trace will often combine forensic financial analysis, detailed public record and corporate investigation, a series of inquiries with sources close to the debtor and its business, and intelligent use of the different legal remedies available in particular jurisdictions and circumstances.

Any particular investigation might lean more heavily on some parts of this process than others, but to get as full an understanding as possible of what, in the case of many recalcitrant debtors, are deliberately opaque structures and interests, Burford’s Asset Recovery team generally finds that the full suite of investigative approaches is what is needed.

3. Jurisdiction and Evidence

So, you have identified potential assets in various jurisdictions. The question now is, how strong is your evidence, on what grounds can you lay claim to the assets, and how is this affected by the jurisdiction of: a) your judgment or award; and b) where the assets are located.

In short, how enforceable is your enforcement mechanism, and what is the commercial viability of executing on it? You need good advice from experts with practical knowledge of enforcing in these jurisdictions, the potential pitfalls along the way, the costs involved and the length proceedings can run on for. You don’t want to end up in a $2m fight over assets of a total of $1.9m, simply because your lawyers didn’t have a clear idea of the potential court costs, appeal costs, etc etc. Or to find too late that your claim to judgment debtor assets is undermined by the fact that the jurisdiction you are in requires you to prove a direct proprietary interest in the claimed assets, and that this is an evidence trail you have not yet built.

This is work Burford carries out on a daily basis, and as such has built up a network of trusted legal advisors, local contacts and jurisdictional knowledge that enables us to pilot cases safely through and over the jurisdictional traps and hurdles that lie in wait.

4. Obtain freezing orders

Freezing orders are commonly used pre-judgment and post-judgment for asset recovery, and are typically granted in instances where there is a risk that the debtor dissipates assets. It is an invaluable and powerful tool, particularly in litigation and enforcement matters involving fraud. Apart from helping to secure assets that may be used to satisfy the underlying debt, when deployed effectively it can help drive the counterparty to the negotiating table.

In Europe, judgment creditors now have a potent new asset recovery tool at their disposal—the European Account Preservation Order. As we’ve previously written, the EU-wide legislation permits freezing and disclosure orders to be made against the bank accounts of recalcitrant judgment debtors across 26 EU countries by means of one single without notice paper application. 

Offset financial burden of recovery process

Given the sometimes substantial and unanticipated cost of recovery once a judgment is obtained, not to mention the risk inherent in any enforcement procedure, asset recovery finance is becoming an increasingly popular tool for law firms and their clients. Asset recovery can be most efficiently financed when the expertise of asset tracing resides under the same roof as litigation finance, as it does at Burford. The litigation finance provider will cover the costs of recovery, including legal and other costs, in return for a proportion of the damages recovered. Importantly, the claimant does not pay any fees until cash proceeds are realized.

The benefits are manifold. Because the funding is non-recourse, the creditors risk exposure is immediately minimized. The potential for return, however, remains intact in the event of a successful enforcement.

Financing of asset recovery can take a variety of forms:

• Immediately monetize the judgment by purchasing all or a portion of the judgment and take full responsibility for enforcing the judgment
• Provide asset recovery services on a full or partial-contingency basis
• Provide advisory services for investigation of assets and recovery strategy during the litigation phase or post-judgment

A hard-won judgment should not go unpaid simply because the defendant debtor refuses to pay and the plaintiff creditor runs out of steam. The combination of asset recovery expertise and bespoke financing provides a practical approach to solving the problem.

Burford is recognized as a leading global finance firm focused on law and the largest provider of litigation finance in the world. It also offers world-class asset tracing capabilities along with a range of financing options—which clients and firms can deploy to transform legal paper without adding cost and risk to corporate balance sheets.