May 2016 – R3 Survey shows the majority of IPs who use litigation funding use Manolete Partners

Last month, Peter Walton, Professor of Insolvency Law at the University of Wolverhampton, released his update report on “Insolvency Litigation and the Jackson Reforms.

A key part of that report focused on a recent survey taken from across all members of R3.

Following the ending of the recoverability of CFA uplifts and ATE premiums on 6th April 2016, Professor Walton concluded, on the basis of the R3 survey results, that 54% of IPs would now, “seek to use third party funders”.

He identified 17 litigation funders as active in the UK insolvency litigation sector, with Manolete Partners model by far the most commonly used by IPs. Of the 42 IPs who said they had used a litigation funder in the past 12 months, Manolete was the named funder on 52% of these cases (22 cases). The next largest recorded was just 7% (3 cases). Twelve of the funders had just worked on one case.

As the largest funder in the Insolvency Sector, Professor Walton dedicated a section of his report to Manolete Partners (“2.3 Analysis of data provided by Manolete Partners plc”). On request, we had forwarded Professor Walton detailed financial analysis of all cost and income on each of the 117 cases we had financed. Professor Walton highlights that, “as Manolete pays its own legal fees and indemnifies the insolvent estate for any adverse costs, a funding arrangement does not involve any risk to the IP or the estate”. This is important as the Manolete Model has several key, often unique, features:

  1. We pay IPs’ lawyers on a normal time-cost basis as the case progresses.
  2. Clause 7 of our standard funding agreement provides the IP and the Estate with a full and unqualified indemnity in the event of any adverse costs. There is no cost for this feature whatsoever. Our return is our share of the final remaining proceeds of the case (after paying all costs) – there is no separate or additional charge for the full adverse cost cover.
  3. With a Manolete funding agreement in place, IPs’ claims cannot be frustrated by a Security for Costs order – no defendant has even tried to obtain such an order on any of our cases.
  4. As ATE is free with us – the cost saving to a case (in particular a small case) is highly material. Consequently, our financing model delivers very attractive returns to the IP and the Creditor Estate.
  5. On larger cases we pay the IP for any additional investigation work required plus time writing and reviewing Witness Statements etc. On a recent reported decision Mr Justice Snowden noted that Manolete was even covering the Office Holder’s administrative costs in keeping the files open while the case progressed through the legal process.

CFA/ATE Backed Cases Risk the IP’s Fees and Creditor Distributions

Professor Walton’s analysis of CFA and ATE backed cases showed with success fee uplifts and the high cost of ATE, it is very difficult to make a return for the IPs costs, let alone any distribution to the creditors. On page 15 of his report, Professor Walton presents analysis of claims below £100,000 and concludes the average surplus (after just CFA legal fees) of £16,732 is unlikely to cover the ATE and IP fees, “let alone permit a dividend to unsecured creditors”.

Even on £250,000 cases, he says, “the claim becomes a significant risk for the IP as little, if any, value is likely to find its way to the estate to pay the IP’s fees or to make a dividend to unsecured creditors. This suggests about half of claims currently pursued using a CFA (the 46% of claims up to a value of £250,000) may not be pursued, at least not using a CFA, once the insolvency exemption comes to an end”.

Engaging in CFAs Exposes Office Holders to Potential Creditor Claims

Professor Walton concludes his report by saying:

IPs who continue to agree 100% CFA uplifts as a matter of course, may find themselves accused of a breach of duty by creditors if the payment of such uplifts contributes to a reduced dividend (or no dividend at all) to unsecured creditors. IPs will need to consider alternative funding arrangements including approaching third party funders. Indeed half of respondents to the R3 survey see that the loss of the LASPO exemption will lead them to consider approaching funders when perhaps previously they would not.

Please contact any of our staff on the “Contacts” tab of the website to learn how easy and fast it is to get your claims financed with no risk taken by you or your Creditor Estate.

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