New research from EY predicts that a year-long trend of decreased litigation volumes in the UK will likely reverse in 2021. But even as companies brace for more litigation, a significant portion may be under-prepared for the financial impact that increased disputes activity could have on their businesses. Not surprisingly, then, EY asserts that UK corporates will warm to using legal finance.
Companies anticipate rising litigation volume
Last year, the number of commercial litigations in the UK fell sharply because of both economic restrictions and widespread corporate decisions to take a more conciliatory approach to business disputes throughout the pandemic. And many companies simply didn’t have the time or resources to bring potential claims as they navigated the operational impact of Covid-19. Indeed, nearly a third (32%) of corporate respondents reported having deferred or stopped investigations which they would have pursued beforehand.
As corporate activity achieves some level of normalcy in 2021, the majority of companies and law firms expect litigation to reach pre-pandemic volumes by the end of the year—and more than half of corporate respondents (56%) anticipate legal claims having “a material financial impact” on their business.
In-house lawyers and CFOs increasingly open to legal finance
Despite the potential financial implications of litigation, a significant minority (43%) of corporate respondents say they feel unprepared for a rise in activity. Many companies continue to grapple with resource, operational and financial pressures and report feeling uncertain about the long-term impact of the pandemic. But with some research and planning, companies can avail themselves of legal finance tools that can help them reduce the costs and manage the risks associated with litigation.
To this point, in related research, EY surveyed 100 FTSE 350 companies and found that more than half are willing to use outside funding to pursue claims—a twofold increase compared to pre-pandemic claims.
As EY disputes partner Mark Fritzsche told law.com, “The legal sector has long been well-aware of the opportunities presented by third-party funding, but the business community in the UK has been more cautious. With the pandemic putting pressure on budgets and resources… There’s been a significant increase in the appetite for third-party funding as a result.”
Law firms can partner with clients to prepare for more litigation
As the need to protect shareholder value prompts companies to become more active in pursuing claims as a potential avenue for recovery, clients will rely even more on their law firm partners.
Given the specific economic disruptions resulting from the pandemic, a significant majority (62%) of lawyer respondents are already proactively recommending that businesses undertake an assessment of their contract risk and evaluate potential legal remedies.
The 2020 Legal Finance Report demonstrates that law firms can further benefit their clients by being knowledgeable about financing solutions to help companies offset the cost and risk of pursuing disputes: 64% of lawyers say that the more law firms innovate how they use outside finance, the better equipped they will be to serve clients. By suggesting proactive measures to prepare for and mitigate the cost and risk of litigation, law firms can serve as invaluable partners to their clients.
Conclusion
With a higher volume of litigation all but assured in 2021, companies don’t have to be caught off guard. A legal finance provider like Burford can help companies including the FTSE 350 and Fortune 500 reduce costs and generate liquidity.
