Counsel Replacement and Key-Person Risk
Definition
Counsel replacement risk is the risk that a funded case loses value when the client discharges its law firm, the firm withdraws, or the lead lawyers move. Key-person risk is the same dependence on individuals at the counterparty, at the law firm or at the fund manager. Burford's 2025 Form 10-K says 'we generally cannot prevent clients from discharging their lawyers originally engaged in a case and replacing them with other lawyers who may be less experienced or capable.'
Why it matters
Funders underwrite lawyers as much as claims: GAO found five of seven commercial funders consider the legal team, and Burford calls itself 'highly dependent' on the lawyers prosecuting the cases it finances. Yet the client, not the funder, decides who those lawyers are, and replacing them can delay the case, raise costs and undo fee arrangements the funder relied on. The same dependence exists at the fund level on the managers who choose and monitor cases. Ask how a fund's agreements handle a change of counsel, how often it has happened, and what the fund's own key-person provisions are.
Common misconceptions
- •A funder cannot normally veto a change of counsel, because clients' right to choose and discharge lawyers is protected by professional rules.
- •Replacement counsel is not a neutral substitute, because the new firm may lack the case history and may not accept the original fee arrangement.
- •Key-person risk is not only at the law firm, because it also sits with the client's decision-maker, central experts and the fund's own managers.
- •A track record does not show this risk, because cases weakened by counsel changes appear only as weaker outcomes.
- •A fund key-person clause does not protect individual cases, because it governs the manager, not the counsel on each claim.
Technical details
Worked example (illustrative): a mid-case change of counsel
Original firm: discounted hourly rates plus a 15% success fee; funder budget $4.0 million; trial in 18 months.
Client discharges the firm after $2.5 million is spent.
New firm needs six months to prepare and charges full rates: remaining budget rises from $1.5 million to $2.4 million; trial moves to 24 months.
The original firm may claim payment for work done, out of proceeds.
If the funder's return is 3.0x deployed capital and it funds the extra $0.9 million, its entitlement rises by $2.7 million, which comes from the claimant's share.
Where key-person risk sits
Law firm: lead partner, trial team, firm continuity.
Client: the executive with settlement authority.
Experts: a central damages or technical expert.
Funder: the underwriter and monitor on the case.
Fund manager: the founders and investment committee, covered by key-person clauses.
What AltStreet's reviews and filings show
Burford's 2025 10-K says that 'as a matter of legal ethics in most jurisdictions, we generally cannot prevent clients from discharging their lawyers originally engaged in a case,' that its financing 'may also rely, in part, on the economic arrangements with the originally engaged lawyers,' and that lawyers 'may be required to act in accordance with their clients' instructions and interests rather than ours'.
Burford 2025 10-K: diligence may not uncover 'potential key-person risk from a counterparty or other party'; it is 'highly dependent on the lawyers' prosecuting the claims it finances.
Zerify 8-K EX-10.1 (August 2024): the company's president named as sole point of contact with full authority to bind the company.
AltStreet's LexShares review: Fund III canceled and payroll cut in August 2024; the chief executive departed and his later suit was settled in December 2025.
Questions about counsel and key people
What does the agreement require if the client changes counsel?
Can the funder suspend funding or adjust terms after a change?
Who holds settlement authority at the client, and is there a deputy?
How often have funded cases changed counsel, and with what effect on outcome and cost?
What does the fund's key-person clause trigger, and who counts as a key person?
How investors apply the term
Investors usually apply this term by tying the definition back to the controlling documents and then asking which cash flows, rights, restrictions, or valuation assumptions it changes. A useful review looks at the term alongside fees, leverage, liquidity, reporting frequency, and manager discretion rather than treating it as a standalone concept.
The practical diligence test is simple: identify who benefits if the assumption is wrong, who has control when conditions change, and what evidence the investor receives after closing. Terms that cannot be reconciled to documents, cash movements, and monitoring data should be treated as marketing shorthand until proven otherwise.
Frequently asked questions
- What happens if the law firm handling a funded case changes?
- The case continues with new counsel, but its value can change. The new firm needs time to learn the case, may price its work differently and may not accept the original fee arrangement. Burford's 10-K says its financing 'may also rely, in part, on the economic arrangements with the originally engaged lawyers' and that if they are discharged, 'the value of those economic arrangements may be reduced or eliminated, even if replacement lawyers are retained.'
- Can the funder stop the client from changing lawyers?
- Generally not. The client's right to choose and discharge counsel is protected by professional rules in most jurisdictions, as Burford's 10-K notes. Funding agreements usually require notice, consultation or consent for a change of counsel, and may let the funder stop funding or adjust terms, but they cannot force the client to keep a lawyer.
- What is key-person risk in a funded case?
- Dependence on particular people: the lead partner who knows the case, the client's executive who controls decisions, or the expert whose evidence is central. Burford's 10-K lists 'potential key-person risk from a counterparty or other party' among risks diligence may miss. Zerify's August 2024 agreement named the company's president as the 'Company Designee' and sole point of contact with 'full authority to bind the Company.'
- What is key-person risk at the fund level?
- Dependence on the managers who select and monitor cases. If they leave, the fund's underwriting and case oversight change, which is why private funds often include a key-person clause that pauses new investments or gives investors rights. AltStreet's LexShares review records that the chief executive departed after the platform entered harvest mode in August 2024 and later sued the company, which settled in December 2025.
- What protections do agreements include?
- Notice and consent for counsel changes, continuity provisions requiring replacement counsel acceptable to the funder, assignment of counsel's work product to successors, and rights to suspend funding or renegotiate if counsel changes without consent. For funds, a key-person clause, a cause or no-fault removal right, and reporting duties.
- How does this affect an investor?
- It is an operational risk that rarely appears in track records. A case that loses its trial team mid-stream can be delayed or weakened, and a fund that loses its underwriters can drift. Ask how often counsel changed on funded cases and with what effect, and what the fund's key-person terms say.