The following article was originally written in Italian and published on NT+ Diritto | Il Sole 24 Ore, the leading Italian professional publication for tax, legal and financial matters, by Giacomo Lorenzo, Head of Italy & Senior Legal Counsel at Deminor, and entitled “Litigation funding, come funziona la monetizzazione dei crediti litigiosi.”
In this article, Giacomo analyses how litigation funding and the monetisation of disputed claims can help companies and individuals mitigate the financial impact of lengthy judicial proceedings, transform illiquid legal claims into immediate liquidity and transfer litigation risk to specialised operators.
ENGLISH TRANSLATION
Litigation funding and the monetisation of disputed claims
By Giacomo Lorenzo, Head of Italy & Senior Legal Counsel, Deminor
Civil judicial proceedings, particularly in Italy, are often characterised by a significant duration, largely attributable to the structural delays of the Italian judicial system. Despite repeated reform efforts, the average length of court proceedings remains markedly high, with disputes that may last more than eight years.
In this context, the objectives set out in Italy's National Recovery and Resilience Plan (NRRP) appear only partially achievable. In particular, the target of reducing the average duration of proceedings by 40% by June 2026, compared to 2019 levels, still appears distant. If the current annual rate of reduction were to remain constant throughout 2025 and the first half of 2026, the overall decrease would amount to approximately 25%. More consistent with forecasts, however, is the target of reducing the backlog of pending proceedings by 90% by the same deadline.
This scenario implies that anyone seeking judicial protection of their rights must often wait several years before obtaining a final decision. Where the subject matter of the dispute has an economic value, the financial impact on the claimant can be particularly burdensome. Not only are the sums at stake not realised in a timely manner, but the claimant must also bear significant costs for legal assistance, court fees and the overall management of the litigation. As a result, many Italian companies are forced to allocate financial resources [which are sometimes substantial] to obtain recognition of amounts owed to them in any capacity, with potentially distortive effects on their balance sheets and financial planning.
In this context, litigation funding represents a suitable tool to mitigate these issues. Alongside the more traditional solution of covering litigation costs, more sophisticated litigation funding structures are now available, capable of neutralising the impact of procedural timelines on a company's financial and capital position or, in the case of individuals, on personal assets.
Among these, the monetisation of disputed claims represents one of the most innovative applications of litigation funding. It allows companies and individuals to obtain immediate liquidity through the assignment of a disputed claim. The transaction is structured as a total or partial assignment of the disputed claim, in exchange for which the assignor immediately receives a price calculated as a percentage of the claim's economic value. In the event of an unfavourable outcome of the litigation and, therefore, of non-recovery of the claim, the assignor is not required to make any repayment.
Which types of disputes can be monetised
In general terms, any dispute involving a claim for damages, restitution of sums or, more broadly, a claim capable of economic valuation may, in principle, be monetised. Monetisation is achieved through the assignment of the disputed claim, allowing the holder of the claim to convert a future and uncertain right into immediate liquidity.
However, it should be noted that not all rights are assignable. Italian law excludes the transferability of claims that are strictly personal in nature or whose assignment is prohibited by law, pursuant to Article 1260 of the Italian Civil Code.
In Italy, one particularly relevant sector is construction, where over time several banks and investment funds have acquired so-called 'accounting reserves'. This term refers to amounts recorded on the balance sheets of construction companies in respect of works performed but not yet recognised or paid by the client, often subject to disputes and, in some cases, litigation. In such cases, construction companies have been able to finance themselves through the assignment of these reserves, obtaining immediate liquidity, divesting themselves of the litigation and improving working capital management, without waiting for the disputes to be resolved.
Further transactions have developed in the field of private antitrust enforcement, where securitisation structures have been set up to aggregate the damage claims of multiple parties into a single vehicle. In these contexts, the assignors were companies that were victims of anticompetitive agreements, holding claims for damages but unwilling to engage in lengthy, complex litigation requiring the deployment of significant financial resources.
Another area of application concerns the acquisition of arbitral awards and court judgments to be enforced abroad. In such cases, various litigation funders have acquired claims that had already been judicially recognised, fully assuming the risk and burden of enforcement activities in foreign jurisdictions, often characterised by high procedural complexity and uncertain recovery timelines.
In some instances, the interested parties already hold an enforceable title, such as a final judgment or an arbitral award. Frequently, however, the losing party does not voluntarily comply, making it necessary to initiate enforcement proceedings to recover the amounts awarded. These difficulties may increase significantly where the debtor's assets are located in another jurisdiction, inevitably lengthening recovery times and increasing enforcement costs.
In these situations as well, monetisation represents an effective solution. The holder of the claim may assign the judgment or arbitral award to a litigation funder, immediately receiving consideration for the acquisition of the claim. The funder, leveraging specialised expertise and an international network, takes over the enforcement phase, assuming the associated risk and burden and allowing the successful party to eliminate uncertainty and delay related to the actual collection of the amounts due.
The securitisation transaction
Monetisation is carried out through a securitisation of disputed claims, structured via the incorporation of a special purpose vehicle pursuant to Law No. 130 of 1999, to which one or more disputed claims are assigned. The vehicle finances the acquisition of the claims through the issuance of securities, the returns on which are linked to the expected cash flows from the favourable resolution of the disputes.Depending on the characteristics of the transaction, the securitisation may involve individual claims or larger portfolios, including claims that have not yet been definitively ascertained, and may provide for progressive funding mechanisms designed to cover both the purchase price and the costs of management and enforcement. In this way, securitisation enables illiquid claims with uncertain timing to be transformed into a structured financial asset within a well-established and regulated legal framework.
Pricing structure in monetisation transactions,
Monetisation transactions typically provide for a pricing structure consisting of an upfront component and a variable component (earn-out). The upfront payment generally ranges between 5% and 15% of the estimated economic value of the claim, while the earn-out consists of a percentage of the amounts actually recovered, the level of which varies depending on when such amounts are realised.
This mechanism allows for an efficient allocation of the temporal risk associated with judicial proceedings. Where the dispute is resolved over a longer time horizon, the earn-out tends to decrease, resulting in a greater allocation of recovered amounts to the funder as compensation for the immobilised capital and temporal uncertainty. Conversely, a quicker resolution results in a greater allocation of recovered sums to the assignor.
By way of example, consider a dispute with an estimated economic value of €10 million. The monetisation transaction may provide for an upfront payment equal to 10% of the value of the dispute, i.e. €1 million, paid at the time of assignment. If the dispute is successfully resolved after three years, the earn-out may amount to 60% of the sums actually recovered.
In this scenario, assuming a total recovery of €10 million and legal costs of €500,000, the assignor would receive a total of €6.7 million, consisting of €1 million upfront and €5.7 million as earn-out. The residual €3.8 million of the recovered sums would remain with the funder.
From an economic and financial perspective, the funder would have made a total investment of €1.5 million, comprising the €1 million upfront payment and €500,000 in legal costs advanced. Against this outlay, the gross return would amount to €3.8 million, generating a margin of €2.3 million as compensation for the risk of an adverse outcome, the multi-year duration of the litigation and the financial commitment undertaken throughout the proceedings.
For completeness, in the alternative scenario in which the outcome of the litigation is unfavourable, the funder would fully bear the loss of the investment made, including the upfront payment and the legal costs incurred. The original holder of the disputed claim, by contrast, would definitively retain the €1 million upfront payment already received and would not be required to reimburse the legal costs advanced by the funder, amounting to €500,000. This confirms the risk-transfer function inherent in litigation monetisation transactions.
Conclusions
The assignment of disputed claims represents an innovative solution for the financial management of litigation, enabling a position that, until the conclusion of proceedings, primarily constitutes a cost centre to be transformed into a source of immediate liquidity. Litigation entails ongoing outflows for legal fees, advisory services and evidentiary activities, without any certainty as to timing or outcome.
Through monetisation, companies can anticipate the potential economic value of a dispute, avoiding the need to sustain the costs required to pursue it over time and transferring the financial and temporal risk to specialised operators. In this way, litigation ceases to absorb financial resources and becomes a tool to strengthen cash flows and improve financial planning.
For Italian companies involved in active litigation, often characterised by lengthy resolution times and significant absorption of financial resources, the assignment of disputed claims may represent a concrete solution to reduce economic impact and mitigate the risk of an adverse outcome.
