In any portfolio there will be assets that do not perform and fall into default. Some may undergo restructuring or other business arrangements. Others may be so severely harmed – perhaps by underlying fraud or other wrongful acts – that legal action against counterparties, guarantors, or third parties is the only way to recover assets.
However, these assets are often left in “Very difficult“, due to concerns about throwing good money after bad money, and uncertainty about how to develop and implement a legal strategy. With these issues in mind, how can a private bank identify and pursue viable claims from a portfolio of distressed assets, with little or no cost risk, to the benefit of the outcome final bank?
The first step is to sort through the portfolio to identify the best opportunities. The focus at this stage is to identify claims with sufficient potential value to justify the cost of follow-up; There are no obvious legal or evidentiary issues (such as a statute of limitations claim); Either large sureties, or defendants with identifiable assets, in enforcement-friendly jurisdictions.
Most importantly, the bank does not bear the costs of this initial exercise. For example, law firms may be willing to do this for free – or at least on a reduced or deferred fee basis – in exchange for first denial of any viable claims identified. Seed funding may also be available from external funders.
Once a potential claim has been identified, the next step is to conduct a more detailed investigation into the legal merits and evidence. This may include instructions from forensic accountants, valuation experts and/or foreign advisors. It will also typically involve some form of asset tracing to identify potential enforcement targets (some of which may have been deliberately concealed) and confirm beneficial ownership.
Again, this work and any resulting legal proceedings need not be financed from the Bank’s own resources. Through a combination of third-party financing and insurance, claims can be pursued at little or no cost to the bank. Alternatively, or as part of this structure, the relevant law firm may agree to risk some or all of its fees in exchange for an increase in the event of success (usually a settlement or recovery of an agreed amount, a court ruling or arbitration award), or a percentage of any damages awarded. Recover it.
With a viable claim identified, the focus shifts to initiating proceedings. Whether it is litigation, arbitration, the insolvency process – or a combination – the goal is to force a settlement, a quick judgment or decision that can be enforced against the identified assets.
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