CFOs becoming more open to litigation funding, Burford Capital study finds

Survey shows just over half of CFOs believe their legal departments should have commercial targets

CFOs are more willing to use litigation funding Shutterstock

Chief financial officers at companies in the UK, US and Australia are increasingly open to using litigation funding despite ongoing reservations about the product, according to a new report by Burford Capital.

The report – which surveyed more than 400 CFOs – highlights that while many finance chiefs are open to adopting a more commercial mindset about using third-party funding and encouraging their in-house legal departments to do so, demand for turning such teams into profit centres was not universal.

While 84% of respondents reported they had either extremely or very extensive legal cost management programmes, only 56% of CFOs believed that the legal department should have commercial targets, which Burford called ‘surprisingly tepid’.

A significant percentage of CFOs (54%) said their legal department’s cost management already met their company’s needs, while 38% said it needed to improve, but steps were in place to do so. 

Almost three quarters of CFOs (73%) also said they took part in ‘affirmative recovery programmes’, defined by Burford as ‘initiatives focused on pursuing meritorious claims that will return value to the organisation’.

A majority of respondents (54%) said existing in-house affirmative recovery programmes met their company’s needs, although 46% said such programmes could be improved. The survey found 75% of corporates with $1bn in annual revenues had not enforced judgments worth between $20m to $100m in 2020, while 39% of medium-sized companies reported unenforced judgments in that same size range in 2020.

Those whose programmes did not meet their business needs were 27% more likely to decide not to pursue judgments for cost reasons, “leaving money on the table,” Burford said.

The survey also suggested a possible lack of financial insight among CFOs in assessing the potential risks and rewards of such claims – insight that funders, like Burford, are keen to supply.

Only 24% of CFOs applied the same quantitative financial modelling tools to make decisions about litigation as they did for other areas of the business, with 39% saying litigation variables did not lend themselves to such analysis. Some 56% of CFOs also felt they were unable to control timing of cash flows from litigation. 

Those CFOs that did carry out such analysis, the report suggested, were significantly more likely to place greater priority on affirmative recovery strategies. 

Christopher Bogart, CEO of Burford Capital, said: “CFOs bring a commercial mindset to other areas of the business – and the legal function should be no exception, particularly given the amount of working capital potentially at stake, measured not only in the many millions now spent on commercial claims but also the even greater opportunity costs of diverting corporate resources and the untapped opportunity to pursue valuable claims altogether.”

Burford’s past financial results have reflected a greater focus on the portfolio funding of corporate claims. It also invested in an equity stake in London law firm PCB Byrne last year.

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