Checklist: When Should a Company Consider Third-Party Litigation Funding?
- Dhruv Mathur
- 6 days ago
- 8 min read
“The most expensive mistake a business can make is walking away from justice because of cost.”
For modern companies, litigation is not just a legal challenge, it’s often a financial and strategic one. Commercial disputes before courts and arbitral institutions can last years, consume management bandwidth, and strain financial reserves. According to the World Bank’s Ease of Doing Business Report, enforcing a contract in India takes an average of 1,445 days and costs nearly 31% of the claim value.
This combination of delay and cost deters even meritorious claims. Many organizations, especially small and medium enterprises (SMEs), end up abandoning legitimate recoveries simply because litigation becomes too expensive. This is where third-party litigation funding (TPLF) offers a game-changing solution.
It enables businesses to pursue strong legal claims without locking in their own capital. Globally recognized and now gaining rapid traction in India, third party litigation funding empowers corporates to seek justice while maintaining financial stability.
But when is the right time for a company to consider third-party litigation? The following comprehensive checklist provides a practical framework for decision-makers, CFOs, and general counsels navigating this evolving financial-legal intersection.
Understanding Third-Party Litigation Funding
In simple terms, third-party litigation funding (TPLF) refers to an arrangement where an independent professional funder pays the legal costs of pursuing litigation or arbitration in exchange for a share of the eventual recovery.
If the case succeeds, the funder receives an agreed percentage or return; if it fails, the company owes nothing. This non-recourse nature makes it one of the most innovative financial tools for risk management in legal disputes.
Globally, litigation funding has matured into a sophisticated asset class:
The UK’s Association of Litigation Funders (ALF) regulates a market worth over £2 billion annually.
In Australia, the High Court validated the concept in Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd (2006).
Singapore and Hong Kong have explicitly amended their laws to support funding in international arbitration.
The United States has several dedicated litigation finance funds managing billions of dollars in claims.
In India, while the market is still developing, the Supreme Court in Bar Council of India v. A.K. Balaji (2018) recognized that third parties can finance litigation. This judgment opened the door for regulated players like LegalPay to create structured, transparent funding solutions; especially in commercial litigation, arbitration, debt recovery, and insolvency proceedings.
Checklist: When Should a Company Consider Third-Party Litigation Funding?
1. When You Have a High-Value Dispute with Strong Legal Merits
The first step is assessing whether the claim is substantial enough to attract funding. Funders typically back cases where the potential recovery far outweighs the costs and risks.
For instance, an Indian infrastructure firm whose concession was wrongfully terminated by a government authority secured ₹25 crore for arbitration costs. The case ultimately resulted in an award worth hundreds of crores.
Globally, cases like Excalibur Ventures v. Texas Keystone show that funders conduct intense due diligence before backing claims—reviewing pleadings, evidence, and enforceability.
Companies should evaluate:
Strength and clarity of legal arguments
Enforceability of judgments or awards
Existence and location of recoverable assets
Proportionality between potential damages and litigation costs
If these factors align, litigation funding can substantially de-risk the claim.
2. When Cash Flow Is Tight or Strategic Liquidity Is Needed
Even profitable businesses often hesitate to deploy working capital for long-running legal battles. Litigation costs are immediate, while recoveries, if any come years later.
Through third-party litigation, companies can preserve liquidity and diversify risk.
For example, a mid-sized manufacturing company in India involved in a ₹50 crore supply chain dispute used LegalPay’s funding to continue operations uninterrupted while pursuing its claim. Without external funding, it would have faced layoffs and operational disruptions.
For CFOs, litigation funding is a capital allocation strategy, not just a legal decision. It allows funds to be directed toward business growth, R&D, or market expansion instead of uncertain legal expenditure.
3. When Litigation Timelines Are Unpredictable
The average commercial suit in India can take over four years to resolve, and even arbitration often stretches beyond two years due to procedural complexities.
Such delays can be detrimental, especially for startups, private equity-backed ventures, or listed entities under investor pressure.
Third-party litigation funders absorb this timeline risk by building diversified portfolios across multiple claims. From the company’s perspective, the dispute transforms from an expense into a long-term contingent asset.
As one General Counsel aptly put it:
“Litigation has stopped being a cost centre—it’s now an asset under management.”
4. When You Want Balance Sheet and Reporting Advantages
From an accounting standpoint, third-party litigation can improve financial optics.
Legal costs no longer reduce EBITDA or profitability.
Cash reserves remain available for operations or expansion.
The litigation becomes a contingent financial asset, not a liability.
These features make funding particularly appealing for listed companies, where shareholder expectations and regulatory transparency are critical.
Globally, large corporations such as Airbus, Volkswagen, and BT Group have turned to litigation finance to optimize balance sheet presentation while maintaining aggressive legal enforcement.
In India, with SEBI’s focus on corporate transparency and investor protection, more entities are exploring third-party funding as part of their broader risk and compliance strategy.
5. When Dealing with Insolvency, Debt Recovery, or Distressed Assets
The synergy between TPLF and India’s Insolvency and Bankruptcy Code (IBC) is particularly strong. Creditors and Resolution Professionals (RPs) often face the challenge of pursuing high-value recovery claims against debtors without sufficient funds to litigate. LegalPay and similar funders enable creditors, banks, NBFCs, and ARCs to pursue recoveries exceeding ₹100 crore without additional capital outlay. This approach transforms recovery from a cost-heavy obligation into a value-generating opportunity.
For example: A financial creditor holding an unpaid corporate guarantee can secure funding for NCLT and DRT proceedings, ensuring continued pursuit of claims without affecting its liquidity or provisioning requirements.
6. When You Seek Strategic Expertise Beyond Capital
TPLF is not just about financing; it’s also about strategic partnership. Funders like LegalPay bring in legal, financial, and risk assessment teams to evaluate the case, identify procedural pitfalls, and optimize litigation strategy.
When a reputed funder backs a case, it sends a strong credibility signal to the opposing party and sometimes even to the tribunal. Additionally, funded companies gain access to top-tier law firms, domain experts, forensic analysts, and litigation technology tools, resources they might otherwise find cost-prohibitive.
For SMEs and startups facing resource-rich adversaries, this can level the playing field significantly.
7. When You Want to Strengthen Negotiation Leverage
Having litigation funding can dramatically improve a company’s bargaining position.
Opponents know that:
The claim has undergone rigorous professional due diligence, and
The claimant now has the financial stamina to litigate aggressively.
This often leads to faster, fairer settlements. In fact, in multiple international arbitrations, the simple disclosure of funding has prompted early resolution—saving management time, preserving relationships, and minimizing reputational exposure.
When Not to Consider Third-Party Litigation Funding
Third-party funding is not suitable for every dispute. It is selective by design, and companies should be realistic about their case strength. Avoid seeking funding when:
The dispute value is too low to justify external investment
The legal merits are weak or uncertain
Enforcement prospects are poor (e.g., insolvent or untraceable defendants)
The litigation is pursued merely for delay or strategic harassment
Funders invest based on probability of success and recoverability, not emotion. Companies should conduct a frank internal evaluation before approaching a funder.
Conclusion: Transforming Disputes into Strategic Financial Assets
In today’s commercial landscape, legal disputes are no longer just legal challenges, they’re financial assets waiting to be unlocked. No company should abandon a strong claim simply because of financial constraints. Third-party litigation funding ensures that justice is accessible, sustainable, and strategically beneficial.
By using the above checklist, corporate leaders can make informed, data-driven decisions about whether litigation funding fits within their risk management and financial frameworks.
At LegalPay, we specialize in helping businesses unlock the value trapped in their disputes. Through structured, compliant, and transparent funding models, LegalPay supports corporates, creditors, and law firms in pursuing high-value arbitration, commercial litigation, and IBC recovery cases. When deployed strategically, litigation funding doesn’t just finance disputes, it transforms them into catalysts for corporate growth, balance sheet optimization, and financial justice.
FAQs
Which cases are suitable for funding?
Not every dispute is appropriate for external financing. Typically, high-value commercial cases, shareholder disputes, contractual claims, insolvency recoveries, and international arbitration matters are best suited. These cases often involve significant legal costs and lengthy timelines, which make outside financing attractive. For instance, disputes above ₹20 crore are often seen as viable, since the potential recovery justifies the expenses and risk involved. Funders also look for cases with strong legal merits, enforceability of judgments, and a clear defendant with assets to satisfy awards. Smaller disputes or cases pursued purely for strategic delay are usually not supported. Globally, funders have also backed class actions, intellectual property cases, and mass tort claims. In India, the focus has largely been on commercial litigation, arbitration, and debt recovery matters. For corporates, the key is whether the claim value and chances of success align with funder expectations.
How does funding influence settlements?
Interestingly, when a dispute is financed externally, it can increase pressure on the opposing party to consider settlement. This is because external financiers only invest in strong cases after careful due diligence, which signals credibility. The opposing party knows that the claimant has the resources to sustain a prolonged legal battle, making delay tactics less effective. For example, in several international arbitration cases, once it became known that a claimant had secured financial backing, the opposing side preferred settlement over drawn-out proceedings. This dynamic often shifts negotiation leverage in favour of the funded party. Moreover, because companies do not have to worry about monthly legal bills, they can negotiate from a position of strength rather than financial desperation. This often leads to more balanced settlements, ensuring that businesses recover value faster without compromising on fairness.
What are the financial benefits for corporates?
The biggest financial advantage is risk transfer. By outsourcing the costs of legal proceedings, companies preserve liquidity and protect their balance sheets. Litigation costs are typically treated as expenses, reducing profitability. But when an external financier covers these expenses, companies maintain healthier financial statements, reassuring shareholders and investors. Another benefit is capital allocation. Businesses can focus their funds on growth, R&D, or operations rather than locking money into unpredictable disputes. Globally, even large companies such as Airbus and Volkswagen have explored funded strategies to prevent sprawling litigation expenses from affecting quarterly results. In India, listed entities are beginning to consider such models under increasing investor scrutiny. For CFOs and boards, financing transforms legal disputes into contingent assets rather than recurring liabilities, which is a major shift in financial strategy.
Are there risks involved?
Yes, while funding offers many advantages, there are some risks to consider. First, not every case is accepted. Funders are selective and may reject disputes with weak merits, uncertain enforceability, or low financial value. Second, the company must share a portion of the recovery with the financier, which means the net gain is lower than if the case were self-funded. However, many businesses see this as a trade-off worth making, since they avoid upfront costs and financial risk. There is also a reputational consideration, as some opponents may view financed claims as aggressive. In India, because formal regulations are still developing, companies must ensure they work with structured and professional funders who use transparent contracts. Overall, the risks are outweighed by the benefits when companies choose funding for the right disputes and with reliable partners.
Why choose LegalPay?
LegalPay is India’s leading player in structured dispute financing, offering tailored solutions for corporates, financial institutions, and creditors. Unlike informal arrangements, LegalPay brings transparency, compliance, and professionalism to the process. The company has experience in funding high-value arbitrations, insolvency recoveries, and commercial disputes where legal costs are substantial. By leveraging its expertise in risk assessment and litigation strategy, LegalPay not only provides capital but also helps businesses maximize their chances of recovery. For creditors, LegalPay has pioneered funding models within the Insolvency and Bankruptcy Code (IBC) ecosystem, enabling faster and more efficient debt resolution. Mid-sized companies, listed corporates, and financial institutions have already benefited from its innovative offerings. For businesses that want to pursue justice without financial strain, LegalPay provides both financial backing and strategic insights. It ensures that disputes are treated not as liabilities but as opportunities for value creation.