This Seven Stars Legal Fixed Rate Litigation Finance Bond review will not only delve into the terms of the investment offering. Instead, it will look into the background of Seven Stars Legal as well as litigation funding itself.
It will be better to know and understand the positives and negatives of investments in litigation finance so you would know whether this opportunity suits you or not.
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This includes if you are looking for options that have a better risk-adjusted return.
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What is litigation finance?
In exchange for contributing the capital, they will receive an agreed upon share of the claim’s net proceeds, plus interest. The “no win, no fee” principle requires someone to front the costs of pursuing a claim until a settlement is achieved while working with a lawyer.
Many large financial institutions are wary of providing funds in these situations because they could be named in a lawsuit as a defendant. Their capacity to take part may also be constrained by limits imposed by maintenance and champerty regulations.
Due to the risk of being named as a defendant in such cases, many institutional funders are hesitant to provide funds in such circumstances. They may be hampered in their efforts because of maintenance and champerty rules.
Litigation financing has grown in popularity alongside the whole industry. The value of the litigation funding market is expected to hit 45 billion pounds by the end of 2023, according to projections. Unlike traditional investment returns, lawsuit funding returns are not affected by changes in the prime interest rate or the stock market.
History of Litigation Finance
According to the Harvard Law School Center on Legal Profession, the contemporary idea of lawsuit financing originated in Australia around the mid-1990s, coinciding with the introduction of insolvency laws in that country. Such laws permitted bankruptcy practitioners to arrange litigation finance agreements which effectively recognized legal claims as business assets. Specialized litigation funding firms sprang out to meet the needs of this emerging sector as a result of this legal structure.
Class action lawsuits’ approval in Australia boosted the country’s already rapid growth in litigation finance. Australian courts adopted these in 1992 after seeing the need for a reliable approach to deal with class action lawsuits. Many litigation funders were initially hesitant to invest in class action lawsuits due to fears that their funding arrangements might be invalidated if they were to fall outside the express terms of the insolvency code.
Concerns were allayed in 2006 when the Australian High Court determined that litigation funding arrangements involving third parties were permissible. Such arrangements did not violate the law or public policy, according to this judgment. As a result of this ruling, litigation funding is now widely accepted and in line with the increasing popularity of class action cases.
Therefore, lawsuit financing has developed into a practical resource. At the present time, private litigation finance firms provide money for the vast majority of large class actions in Australia.
Although the UK’s introduction of litigation finance occurred at roughly the same time as Australia’s, the two countries’ paths diverged after the passage of landmark legislation. Decriminalizing maintenance and champerty in the Criminal Law Act of 1967 was a major step forward. The legal responsibilities connected to these concepts were also nullified by this statute.
Parliament passing the Courts and Legal Services Act in 1990 was the second seminal event. As a result of this statute, clients and attorneys are able to enter into conditional fee agreements (CFAs). The practice of entering into “no-win, no-fee” deals, as they are more generally known, was once illegal in the UK. The advent of litigation funding can be traced back to the repeal of this ban.
Legal professionals can now provide funding for cases requiring their knowledge and effort, in exchange for a percentage of any settlement or verdict. Clients who previously lacked the financial resources to independently initiate legal action were given newfound agency as a result of this development. Modern litigation funding in the UK can be traced back to the 1990 legislation and the subsequent repeal of champerty and maintenance constraints.
Before the middle of the 2000s, most personal injury claims were the only ones eligible for litigation finance in the United States. Since 2006, when specialist commercial litigation funding was first made available, the litigation finance business in the US has grown substantially.
State governments are largely responsible for enforcing rules regarding litigation funding. Each state’s legal system, legislature, and bar associations are responsible for upholding their jurisdiction’s Maintenance and Champerty statutes.
In 2004, the American Legal Finance Association was formed, and in 2005, the member companies of ALFA established a set of guidelines for conducting business.
Legislators, courts, and the general public are increasingly recognizing lawsuit financing arrangements for what they are: mutually beneficial partnerships connecting investors with plaintiffs.
Third-party funding mechanisms in arbitrations have only recently been made legal in the Asian countries of Singapore and Hong Kong. Although there is no specific law in India concerning third-party funding, contracts including champerty and maintenance are not explicitly forbidden, either, unless they are created maliciously.
Contracts for lawsuit funding are treated as one-of-a-kind agreements, governed by the principle of contractual independence, in the majority of European countries with civil law systems. In such situations, it is generally accepted that until otherwise stated, all actions are fair game.
Litigation finance is highly unregulated, leaving lawsuit funding firms without a universally accepted code of ethics. In the late 1990s, the door was opened for the first litigation funders to join the German market and supply their services. Because of this development, a fully developed market has emerged. Attorneys in modern-day Germany are, astonishingly, required to tell potential litigants of lawsuit funding as an option.
Who is Seven Stars Legal?
Seven Stars Legal is a non-bank lender that focuses on high investor returns. Their primary area of focus is the litigation finance and case generation sectors of the UK Legal Services industry. At first, they will focus solely on making investments in the UK and forming partnerships with companies already established in the country’s prestigious legal sector.
Seven Stars was conceived and cultivated by a skilled litigation finance team with a stellar record of success. This group found a remarkably large financial opportunity that well outweighed their internal requirements. As a result of this insight, Seven Stars was founded with the aim of developing into a sizable, independent, non-bank lawsuit finance business.
As of the end of 2022, its affiliate will have successfully raised over 22 million pounds and backed over 15,000 lawsuits. There have been no incidents of default, and they have established the basis for an additional 250,000 cases.
Effective litigation finance requires rigorous case curating or financing specific sorts of cases. At Seven Stars, cases with the best chance of success and profit are carefully chosen. They pick “precedent-based legal claims” for investing to trim the risks.
According to their operational requirements, they lend to regulated law firms or marketing firms that help law firms acquire cases.
One of their fundamental requirements is that all cases that are considered for funding must have After the Event (ATE) insurance. Both the investors and the financed parties benefit from the extra safety and reduced risk that this preventative action provides.
Only lawsuits filed against large, established businesses that can prove they have sufficient financial resources are taken into consideration for funding. Most commonly thought of are large organizations like banks, municipalities, and utility companies.
To further ensure responsible management and allocation of capital, they set clearly defined minimum claim limits that are industry-specific.
What are the terms of Seven Stars Legal Fixed Rate Litigation Finance Bond?
This asset-backed investment is denominated in British pounds and supports contributions of up to 25 million. Flexible investment quantities are accommodated by bond denominations that range from the Euro equivalent of 100,000 pounds to integral multiples of 1 pound.
This investment offers fixed returns of 14% per annum. The interest is calculated daily, beginning the day after subscription is finalized and continuing all the way up to the bond’s maturity date.
The bond is set to mature March 31, 2025.
How does it work?
Seven Stars Legal protects investor capital by only taking on multiple small, precedent based cases with liquid defendants. A precedent based case is a case where courts are required to apply the law in the same manner to all cases involving the same facts.
When coupled with the UK Statutes (which govern how people and firms must act), many legal professionals rightly feel that this combination ensures individuals in similar situations are treated alike instead of based on a particular judge’s personal views. This makes the outcome of the case predictable and encourages settlement.
By focusing on various, distinct cases with established precedent and defendants in good financial standing, Seven Stars Legal guarantees the security of investor cash.
Legal experts can rest easy knowing that their clients are protected by both the governance offered by the UK Statutes and the rules governing the actions of individuals and businesses. This is due to the fact that it prevents disparate treatment of defendants in similar cases and removes the subjectivity of individual judges. Because of this foreknowledge of potential outcomes, settlements are induced.
If you or someone you know is interested in investing in this potentially lucrative enterprise, you must speak with a financial advisor or an authorized representative of Seven Stars Legal.
Professional investors (such as portfolio managers, family offices, and trustees) interested in acquiring the bonds are encouraged to send an email to hello@7stars.legal for more details and to discuss the investment in length.
What are the benefits of litigation finance investments?
The prospect for big returns is the main lure of litigation finance bond, with successful lawsuit cases generally outperforming traditional investments. Since its performance is independent of financial markets, this investment route diversifies and strengthens portfolios.
Legal case settlements and court verdicts determine litigation financing investors’ passive income. Since litigation outcomes are rarely affected by economic trends, this income stream is essentially immune to market swings.
Litigation financing investment also provides legal knowledge as experts can help investors choose cases and invest.
The global nature of litigation funding prospects allows for a variety of instances in different countries. Investment opportunities for growth and diversification are expanded by this international breadth.
What about the risks?
Legal investments are usually non-recourse, so the third-party investor won’t get paid if the lawsuit fails.
Naturally, many cases settle early, even if they’re not advancing as expected. This settlement may not provide the whole previously agreed-upon profits, but it may provide a reduced return or partly return the invested funds.
Litigation is unpredictable due to its uncertainty. It takes time to resolve legal cases. Your investment may not yield rewards for a long time. This restricts your investment options.
Litigation financing differs from more traditional investments in that it frequently entails exposure to only one or a small number of cases. Your entire capital may be at stake if even a single case is unsuccessful.
Ethical issues have been raised by some investors and legal experts who stand to gain financially from a successful court case. If the public sees it as using the legal system for personal advantage, support may be harder to come by.
You may find it difficult to sell or exit your investment in a litigation finance arrangement prior to the conclusion of the case, leaving you with few choices for generating cash flow.
Ultimately, investing in this bond carries big risks, and you could lose all your money.
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Adam es un autor reconocido internacionalmente en temas financieros, con más de 830 millones de respuestas en Quora, un libro muy vendido en Amazon y colaborador de Forbes.
