In Spotlight: LegalPay
Ensuring that the lack of capital does not impede legal representation
Access to justice need not be hindered by capital constraints. LegalPay has developed simple approaches to facilitate justice access by merely infusing capital, at the right time.
Firstly, they offer litigation financing services, specifically stepping in to aid smaller businesses with limited financial resources. By providing funding for legal expenses, LegalPay enables these businesses to pursue legal action and level the playing field against well-funded opponents. More on this later.
Secondly, LegalPay offers interim financing to insolvent companies, allowing them to be assessed fairly under the Insolvency and Bankruptcy Code of India (IBC). This support helps these companies be evaluated as ‘going concerns’ (companies that will meet financial obligations), ensuring a more equitable process during insolvency proceedings.
Empowering Litigants
Litigation financing offers a solution for businesses and individuals hesitant to pursue litigation against larger organisations due to the high costs involved, such as advocate fees, court expenses, and other related costs. LegalPay provides financial assistance to parties involved in legal disputes through this instrument in exchange for a portion of the potential settlement or judgment. By bridging the capital gap and offering access to capital, particularly for startups and companies with limited financial resources, litigants are able to pursue legitimate claims.
Also, contrary to traditional means of funding, such as high-interest debt, the arrangement of LegalPay’s funding is non-recourse in nature, meaning that repayment is contingent upon a successful outcome. This arrangement shifts the risk from the plaintiff to the litigation funder, mitigating the financial strain on the litigants during the legal process.
Thorough Case Evaluation and Claim Validation
For each case, LegalPay conducts a thorough internal evaluation of the parameters of the case. This includes legal merit, the advocate involved, financial due diligence and others. Once the claim is validated, LegalPay takes a calculated call to support the claimant’s case. This also enables litigants to thoroughly assess the merits of their claims, evaluate their chances of success, and help make a sound decision of whether or not to pursue a case.
“Agar main iss chhote se data point ke hisaab se bhi dekhun to humne kuch sau ghante bachaye hai court ke, agar logo ne usse pursue nhi kiya hai to. Doosra, whatever case which we have funded, there’s seventy per cent probability of settlement, kyunki sabko pata hai ki opposite party ko unka khudka lawyer lagega aur paise dene padenge, par yahan pe to third party ne fund kiya hua hai, so same validations, the case has got merit and teesra, ki paisa to mujhe aage dena hi padega so better ye hai ki chalte hai negotiate karke khatam kar lete hain, to wo saara ka saara impact humne create kiya hai.”*
Restoring Justice to Insolvent Companies
A company's fight to bounce back from bankruptcy isn’t typically what people would intuitively call a fight for justice. LegalPay, however, does. Companies that have run out of money undergo an assessment by their creditors, a process overseen by law, to either reinstate operations or be acquired at a fair value. LegalPay believes that anything that prevents companies from being assessed fairly as ‘going concerns’ is an injustice needing correction.
When a business becomes insolvent, it is essentially entirely out of liquid money (money it can spend). It can no longer sustain operations or pay its staff, so all production/services come to a grinding halt, and the staff leave or are laid off. Therefore, this business is no longer a going concern and can't be assessed duly.
This is what happened to a hospital in Bengaluru. Like many healthcare institutions, the hospital faced significant financial strain due to the increased costs associated with treating COVID-19 patients and the economic downturn caused by the pandemic. They came under the radar of the Insolvency and Bankruptcy Code (IBC) - a law passed in 2016 - that assesses insolvent companies to gauge any chances of revival, of which usually there are none.
The IBC was formulated with the objective of restructuring rather than recovering. To this end, a Resolution Professional (RP) is assigned by the insolvent company's Committee of Creditors (CoC) to restructure and assess the chances of revival.
However, the moment a company declares insolvency, it becomes difficult for them to raise capital to continue its operations and retain its employees, thus, leading to a situation where its assets start steeply depreciating in the decades it takes for IBC to complete the audit process. This, in turn, makes the company unable to be fairly assessed, and the creditors lose almost 90% of their investment.
This is where LegalPay enters the scene.
A Win-Win Solution
LegalPay conducted a 15-day audit at the hospital: a thorough financial, legal, and leadership/management assessment of the hospital. First, their financial expertise allowed them to assess if the hospital had the potential to be profitable under the right management. Then, their legal expertise allowed them to gauge the legal merits of the hospital’s IBC case.
They then chose to back the hospital by offering interim funding to revive operations and rehire staff immediately. This funding also covers the cost of litigation. This gave the hospital two strong legs to fight for survival.
A neat fact that works in LegalPay’s favour is even if the company ends up being liquidated, LegalPay legally falls first in the waterfall. So, they are the first to get their money back, making this hyper-secure for the interim financers.
An immediate injection of funds (and management change) swiftly revived the hospital’s operations. Within 7-8 months, the hospital was back to profitability, and it was acquired by a larger hospital chain that retained all its staff and patients. The creditors got back 100% of what they were expecting, and the shareholders got 50x more than what they were expecting.
This is how LegalPay intervened to circumvent the IBC’s 10-year audit process. LegalPay’s 15-day audit is now a 7-day audit.
Enhancing Access to Justice
Currently, LegalPay works with more than 200+ companies all over India and manages more than 2500+ Cr claims in different courts and jurisdictions, and this number is constantly growing. LegalPay’s brand of litigation financing has proven especially helpful for startups and MSMEs, who face the maximum amount of working capital issues due to bad deals, delayed payments and fraud. At this critical juncture, LegalPay stepped in and extended litigation finance to the MSMEs and startups, empowering them to successfully recover more than 85% of the disputed amount, along with accrued interest, within three months.
By bridging the financial gap, LegalPay helps equalise access to justice.
Notes:
*Kundan Shahi, co-founder of LegalPay, in conversation with Ritvik Lukose during Agami Prize 2022.
Edited by Varun Hemachandran.
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