The coronavirus pandemic and its recession is hitting the legal industry hard, and firms are bracing for furloughs, layoffs, hiring freezes, and other adverse economic impacts. The COVID-induced recession has arrived—and the legal industry is not immune. The industry-wide cost-reducing efforts suggest that law firms are wary of the economic outlook, and some are already scrambling for cash.
LegalPay a Delhi based B2B commercial litigation finance company is now helping with capital access to businesses to transfer their risk of litigations. LegalPay is founded by Anurag A., Himansu Kesari, and Kundan Shahi to help with litigation costs.
This segment picked up when Blackrock Inc invested in a Litigation claim of Hindustan Construction Company, INR 1750 crores.
Kundan Shahi explained as Angel Investors invest in startups in lieu of higher reward, similarly, we have investors who want to invest in commercial cases to maximize their ROI. We have an excellent deal flow and we are required to invest around 6-10 cases in this year and focus on investing in 100 deals over a period of time. LegalPay invests in a case that has INR 25 lacs of litigation costs and cases are in High courts/supreme court/Arbitration forum.
Since inception, LegalPay has strategically positioned itself in the commercial legal claims sector. It finances case types like a breach of contract or antitrust where both litigants are business entities. It also does portfolio funding where financing is provided to collateralized by a docket of commercial legal claims.
They follow very stringent criteria to evaluate a case for investment including an independent review by a reputed law firm.
They are planning to invest in around 100 commercial litigations over the next 3 years. They have secured case funds to invest in initial cases and claim that they have a pool of High Net worth Individuals who are willing to diversify their investment portfolio by investing in commercial claims.
Since commercial litigation investment has been an exciting alternative asset class for investors, with a moderate investment period it gives around 40 % IRR. Investors are attracted to litigation funding as they have witnessed that all institutional investors have invested in litigation finance and LegalPay underwriting model gives them the confidence of investment in curated deals.
Third-Party Litigation Funding by LegalPay will work as a bridge between businesses and law firms in these testing times, providing businesses access to capital to manage legal risks and providing law firms with plush capital.
On average, a civil lawsuit in the High court takes 36 months from filing to disposition, 16 months in Supreme court and less than a year in NCLT.
The global recession of 2008 significantly changed the business growth trajectory as tight credit markets, declining asset values, and escalating legal costs greatly expanded the practice and viability of investing in lawsuits.
COVID19 has created very similar situations across stakeholders, law firms are unable to receive payments and businesses are adjusting their support costs.
