Risk hedging and positive accounting

Risk hedging and positive accounting

Risk hedging: For many claimants, litigation is a necessary evil. Litigation or arbitration may be the only method available for unlocking a disputed asset or claim. Many businesses could find the money to fund a litigation, and could bear the risk of losing the litigation, including the contingent risk of an adverse costs award. However, quite a lot of such businesses choose not to do so for fear of the risk involved. A desire to avoid the costs and risk of litigation may mean that these businesses lose out on the potential value of the litigation asset. That is where Woodsford Litigation Funding steps in. We can take on the costs and risks burden of a litigation or arbitration, often in liaison with highly skilled claimant law firms, leaving the claimant with huge potential upside, but minimal potential downside.

 

Positive accounting: For finance directors, litigation is often too expensive and too unpredictable to make good accounting sense. A business with a litigation claim effectively holds a receivable, a balance sheet asset, albeit a risky one. However, the claim is often not treated as an asset for accounting purposes. Further, accounting rules often require that litigation costs are expensed, flowing through the P&L, thereby reducing operating profits. Even when the claim is resolved successfully, the associated income is treated as a one-off item, rather than as operating income. All in all, litigation claims rarely assist finance directors in maximising profits and/or minimising expenses. This is where we can assist. Woodsford Litigation Funding can help litigants manage the adverse accounting consequences of litigation. We pay the costs of litigation, avoiding drag on the profitability of the business. Our funding may allow the business to divert cash to other projects, assisting asset value. A successful litigation can then be viewed as both a positive cash and income event.

 

For more information contact: Mark Spiteri