Business bankruptcy filings were up 29% in 2020 from the previous year. These numbers dipped slightly in 2021 thanks to government stimulus measures like PPP. However, as financial help from the government winds down—financial experts anticipate bankruptcy filings to spike again.
An LFJ Conversation with Michael Kelley, Partner, Parker Poe
Business bankruptcy filings were up 29% in 2020 from the previous year. These numbers dipped slightly in 2021 thanks to government stimulus measures like PPP. However, as financial help from the government winds down—financial experts anticipate bankruptcy filings to spike again.
Business Insider explains that bankruptcies are an opportunity for litigation funders, who profit by investing in recoveries and receive a portion of recovered assets. Last year, Burford Capital, the largest funding firm, invested nearly $100 million in bankruptcy and insolvency cases—up from $83 million the previous year.
Similarly, LexShares, Legalist, and others, report more requests for funding than in previous years. Consider that a company in financial distress may be unable to pursue its most valuable assets—pending litigation claims. By providing businesses the funds needed to pursue valid claims, opportunities for returns increase for the business and funders. Rather than forgoing the case or accepting a small settlement, businesses can hire a quality legal team and pursue claims with vigor.
Litigation funders are poised for a spike in bankruptcy filings and litigation as financial markets settle into a new normal. Some firms, like Legalist, are preparing to provide DIP loans to small businesses. These low-risk bankruptcy loans are typically not available to the small businesses Legalist serves.
No doubt, litigation funding is here to stay. The pandemic and ensuing financial upheaval have prompted the conditions that enable this practice to achieve relevance on a global scale.
