Moloney: Toughest year for the company to date
Shares in listed funder Litigation Capital Management (LCM) crashed by 60% yesterday after the number of cases it has lost meant there was “a material uncertainty in relation to our going concern status”.
In the year to 30 June, LCM won six cases and lost six cases, with a further three, worth £22m, under appeal after losing.
To make matters worse, alongside publication of the results was an announcement that the High Court had found against its commercial client in a case where it had contributed £10m of its own capital and a further £6m from the funds it manages.
LCM, which originated in Australia but listed in London in 2018, recorded net gains of £11m in the year, with concluded case investments generating a 1.8x multiple of invested capital, but a total loss of £41m given the case losses.
As a result, the company has commenced a strategic review, the options arising from which will be benchmarked against a lean run-off operating model.
Chairman Jonathan Moulds said the financial strain from case losses and reduced cash realisations has increased LCM’s reliance on its debt facility.
He said: “The binary nature of our investments means that in light of our increased indebtedness there is a risk that in certain circumstances, further case losses could lead to a breach of LCM’s debt covenants. As a result, we are reporting a material uncertainty in relation to our going concern status.
“The management team have been proactively engaging with the lender over the last few months. The lender has indicated that its current intention, which is subject to ongoing review and may be reconsidered in light of future developments or change in LCM’s circumstances, is to continue to support LCM for the next 12 months as we advance the strategic review.”
The share price closed at an all-time low of 10.75p; a year ago, they were about 100p.
Chief executive Patrick Moloney described the last 12 months as “the most challenging in LCM’s history”.
He went on: “Despite our established long-term track record of successful outcomes and consistent returns on invested capital, an unprecedented number of adverse case results have negatively impacted our performance…
“Disappointingly, several of the adverse outcomes were for cases where we had invested significant shareholder capital. While these results are reflective of the inherent binary risk in our asset class, they have fallen well short of our expectations and historical benchmarks.”
Mr Moloney admitted that “our approach to investment management may not have fully sustained the proactive and tenacious rigour that defined LCM’s earlier success”.
He blamed moving towards “the industry’s standard lawyer-led approach”, rather than a previous “hands-on, active investment management, which has driven superior outcomes”. LCM would now go back to this.
Other actions have included “decisive action on underperforming investments” – it recently pulled the plug on an Australian class action it has been backing since 2018 and is now examining whether to sue the solicitors who brought it the case – and enhanced scrutiny of expert evidence.
Mr Moloney said: “A recurring factor in recent losses has been insufficient critical evaluation of expert reports, as case lawyers often lack the quantitative expertise to challenge them effectively.
“To counter this, we are instituting a more rigorous due diligence process, including engagement of independent quantitative specialists and integration of advanced analytical tools early in case assessments.”
LCM has also embraced a “run-off model with a concentrated effort to manage our existing investments to realise value for shareholders”. This has also seen operating expenses halved and an unspecified number of staff let go.
Mr Moloney said the company was also hit by media reports of a corruption probe by prosecutors in Dubai – which it did not know about at the time.
“While LCM has been fully exonerated in this matter, the process has clearly negatively impacted the company, affecting multiple key business areas and restricting strategic opportunities that were advanced, at the time including the anticipated first close of Fund III.
“In our view, it cannot be disputed that this was entirely avoidable if LCM had been approached at an early state of any investigation, rather than finding out about this process from a press leak…
“We are actively reviewing our legal options to ensure the company can be compensated to the full extent possible.”
As of 30 June 2025, LCM was actively invested in 53 ongoing cases, with a total balance sheet value of £85m.
In recent years it has moved to a model where cases are funded typically 25% from LCM’s own balance sheet and 75% from third-party funds.