How are law firms responding to current challenges?

In challenging times it’s understandable when businesses become introspective, but for professional advisers like law firms, much value can come from speaking with clients and sharing experiences. In our conversations with law firms and corporates over the past few weeks we have learnt many things; in particular, despite many law firms feeling under pressure, they are also actively collaborating with clients to find ways to help mitigate their current challenges.

Encouragingly, this is leading to creative solutions.

Alternative fee structures

Many firms are actively assuming greater credit risk in order to support their clients, through initiatives such as:

  • offering generous conditional fee arrangements, or damages-based agreements, perhaps having never offered them previously;
  • restructuring existing fee agreements on cases already underway; or
  • using their own cash reserves to undertake investigatory work for clients and assessing the viability of potential claims.

General Counsel tell us they regard it as incredibly valuable when law firms are prepared to share the risk of litigation and commit their own resources in these ways. Whilst there is clearly a limit to how much credit risk a firm can take on, considering alternative fee structures with a client could certainly help strengthen the relationship

Considering litigation as an asset, not a liability

Corporates often regard new claims as unnecessary risk and cost additions to their balance sheets, preferring instead to focus resources on the most essential areas of their businesses. To navigate around this, some law firms are offering to undertake investigations of their clients’ claims portfolios, assessing where potential new income may lie. Even if now is not the right time to pursue new claims, or more vigorous enforcement of existing judgments or awards, this type of work could facilitate new workstreams when circumstances change.

More immediately, identifying these claims also provides monetisation opportunities. Assigning the claim to a third party can provide helpful cash income or advances on damages.

Conserving cash whilst sustaining relationships

As clients increasingly need to conserve cash, there is a knock-on effect to law firm income. Many firms have started to furlough staff, defer bonuses and reduce working hours, as well as delaying supplier payments and billing vigorously. All these can give rise to reputational issues.

In contrast, some firms are looking elsewhere for income – bank or partner capital, or perhaps third-party funding. Some firms are using it to mitigate their CFA or DBA risks and provide monthly income, with others using it to monetise contingent future revenues in exchange for cash payments.

 

What has become clear is that active engagement with clients is encouraging creative conversations which foster mutually supportive relationships for navigating through this new and uncharted landscape.

If you would like to understand more about any of these solutions, please contact Maurice MacSweeney at maurice.macsweeney@harbourlf.com.