A Year of Two Halves
2022 started on a rather depressing note for all of us: Omicron was tearing through the population and just as that started to abate, Russia tragically invaded Ukraine. However, as the year developed things started to return to some form of normality, albeit a new-normal of: hybrid working, high inflation, high interest rates and (thankfully) a return to normal insolvency laws.
At Manolete, we started to see the first shoots of a recovery in our business in the second half of the year and by November we had recorded our highest monthly number of new insolvency case investments, ever! Hopefully that is a harbinger for better times ahead for all of us in the restructuring and insolvency industry.
It has been wonderful to see the return of face-to-face meetings and in-person conferences. R3's SPG was wonderfully well attended and was certainly one of the high points of the year for us.
Our proudest moment was the publication of the Chambers Guide 2022, where for the second year running Manolete was named as the only firm in Band One for Insolvency Litigation Funding. Of all the various league tables and awards (because it is based on detailed, objective, third party evidence and feedback) we view Chambers as an important industry benchmark for everyone operating in the legal financing business.
Earlier in the year we were delighted to add three new senior members to our legal team: Alexandra Withers based in the North East, Brett Eales in the South West and Kelly Jordan joining our Business Development team. More new joiners will be announced early in 2023 as we gear up for what promises to be a busy and exciting year ahead.
We have been honoured and privileged to work with so many superb IPs and insolvency lawyers throughout the year. And we wish all our readers a very safe and happy Christmas and a healthy and prosperous 2023.
Inaction by an Office Holder may be Perverse where Funding and Indemnities are Available
An office holder has a statutory duty to positively manage assets in the insolvent estate in the interests of creditors. If those assets are the subject of litigation, it may not be sufficient to stay neutral or refrain from engaging in litigation simply on the basis of lack of funds where funding and indemnities are available and there are benefits to the insolvent estate in engaging in litigation. This was recently highlighted in the recent case of Patley Wood Farm LLP & Ors v Kristina Kicks & Anor  EWHC 2973 (Ch), in which the High Court directed trustees in bankruptcy to join ongoing possession proceedings, finding that the Trustees' decision not to intervene was perverse.
The Issues Before the Court
The trustees in bankruptcy (Trustees) of Nihal Mohamed Kamel Brake and Andrew Young Brake (Bankrupts) were the respondents to an application made by Patley Wood Farm LLP and Lorraine Breheme, (PWF) a majority creditor of the Bankrupts and The Chedington Court Estate Limited (Chedington) under section 303(1) of the Insolvency Act 1986 (Act). Section 303(1) of the Act provides a remedy for creditors, the bankrupt or any other person dissatisfied by any act, omission or decision of a trustee of the bankrupt’s estate.
Decision and Reasoning
The application arose from the Trustees’ decision not to intervene in possession proceedings between the Bankrupts and Chedington following the purported sale of the Bankrupts' interest in a property known as West Axnoller Cottage (Cottage). The Trustees took the view that it was not in the interests of creditors to join in proceedings where there was no financial benefit to the bankruptcy estates. The Trustees considered it was not cost effective because there was no value in the Cottage as result of a charging order over the Bankrupts’ interest in favour of PWF. Getting involved in the proceedings would lead to unnecessary costs being incurred in the bankruptcy estates and expose the estates to the risk of adverse costs.
That in itself would likely not have prompted the Court to intervene in the Trustees’ decision to refuse to take part in the proceedings. The Court acknowledged that in ordinary circumstances an office holder who lacks funds or risks paying costs will not be required to enter into litigation. However, there were circumstances leading up to the hearing of the application that led the Court to determine their decision was not justified.
Firstly, the Trustees had been offered funding and indemnities by Chedington that would have mitigated their fears of the cost implications to the estates if they were to become embroiled in the proceedings. Secondly, the Court of Appeal in the possession proceedings had made encouraging comments as regards the Trustees’ intervention in the proceedings. Thirdly, there was a clear opportunity to monetise the Cottage for the benefit of the bankruptcy estates by accepting Chedington’s offer to put in place formal commercial terms for occupation of the Cottage which would see Chedington pay a licence fee to the Trustees whereas the Bankrupts were not providing any financial consideration for their occupation. Fourthly, it would avoid the potential consequences of the Bankrupts continuing possession of the Cottage, including, their financial inability to maintain the property, leading to the potential erosion of value and the Trustees’ ability to secure vacant possession if the Bankrupts failed to co-operate in that regard.
The Trustees seemed to be at pains to avoid taking part in proceedings despite the benefits of them doing so and the offer of funding and indemnities. HHJ Matthews considered that trustees ought to possess a degree of robustness in the sense that they are looking after someone else’s interests, not their own. On the Trustees’ neutral stance, HHJ Matthews was unimpressed, commenting that it is not a trustee’s job to remain neutral as between creditors and the bankrupt; they must advance the interests of creditors against the bankrupt. While the decision not to participate in the proceedings may have initially been justified, considering the subsequent facts and matters brought to the Trustees, it was no longer reasonable to continue to adopt that stance.
Associate Director North East
Stephen Baister Writes - Good and Bad Witnesses (1)
Witnesses can be good or bad, and cases are more often won or lost on the evidence than any legal proposition. Not just the substance of their evidence but the way they give it too can have a profound effect on the outcome of a trial.
In Painter v Hutchinson  EWHC 758 (Ch) Lewison J, as he then was, commented on the qualities of the witnesses he had heard and gave a non-exhaustive list of satisfactory and unsatisfactory features of their evidence. The witness evidence in the case before him was important because the documentary evidence was sparse, so a great deal turned on the credibility of the two principal witnesses.
In favour of the claimant he mentioned the following:
- He gave his evidence firmly and clearly.
- He readily conceded his past imperfections, agreeing that he had been guilty of duplicitous conduct in the past, notably in his dealings with the Inland Revenue. But that, the judge noted, did not necessarily mean that his evidence in this case was dishonest or unreliable.
- His account of events had been consistent throughout the litigation.
His impression of the defendant was unfavourable for a number of reasons:
- He had been convicted of dishonesty in the past, but there were other problems too in this case.
- He was evasive and argumentative.
- He made tangential speeches when dealing with questions that he could not answer.
- He gave strained readings to the plain words of his pleaded case and his principal witness statement.
- He blamed his previous solicitors and counsel for mistakes in recording his instructions (presumably without justification).
- At times he gave self-contradictory answers within the space of a few minutes.
- He made new allegations in the course of his cross-examination which had not formed part of his pleaded case or his written evidence. “It was impossible not to conclude that they had been made up on the spot.”
- His case had shifted in response to the claimant’s evidence or to documents that had emerged on disclosure.
- It changed again and again in the witness box.
- His disclosure of documents had been lamentable and selective.
- He had deliberately and dishonestly fabricated evidence to try to accommodate what was indisputable within the overall framework of his story.
- He had tampered with important documents.
Some of those points go to factual findings rather than the manner in which the unsatisfactory witness performed in court, but these things can, and in this case did, overlap.
Witness coaching is not allowed. But you can advise a witness about how he or she should give evidence in court. Lewison J’s factors can help in doing so. But in the end it is telling the truth that is likely to serve a witness best.
Independent Non-Executive Director
Q and A
Associate Director for the South
What is your legal background?
In the 20 years before joining Manolete I was a commercial litigator; I specialised exclusively in contentious insolvency in the last three years. Early in my legal career, I acquired higher rights of audience and frequently appeared in court as an advocate, including at trial. All great fun but litigation is rarely an enjoyable experience for the client. I therefore tried to avoid lengthy legal proceedings by reaching a commercial settlement at an early stage, wherever possible, often through mediation. Later in my legal career, I qualified as a mediator and remain firmly committed to mediation as a way of resolving even the most intractable disputes.
How long have you been at Manolete?
Just under four years, all of which I have enjoyed more than my years in legal practice.
What have been your main impressions?
Dynamic, fast-paced, flexible and commercial. I have joined an experienced, well-motivated and highly co-operative team which has enjoyed many successful outcomes and continues to grow. I have particularly enjoyed being part of an organisation with a tremendous reputation and the financial strength to see cases through to trial wherever necessary.
What are the other highlights?
Working almost exclusively with IPs and insolvency lawyers has been a great plus point. Although my role is to act as the client on behalf of Manolete, the IP, solicitor and funder all work together as a team and that has led to some great results. We are able to move quickly and make commercial decisions with the clarity that comes from being able to take an objective approach.
What do you do outside work?
Family man. Three adult children (one still on the payroll) and three grandchildren. Oh yes, and I cycle a lot, sometimes with colleagues in the insolvency profession who care to join me on rides in the New Forest and Isle of Wight, always with ample refreshments.
Getting started is very easy
Manolete has developed a series of social media videos, with our PR partners Instinctif. The videos highlight the strength of our lawyers network, the unique Manolete model and the benefits to creditors in insolvent estates if IPs choose Manolete litigation finance.