Manolete Wins Appeal against Imposing a Cap on Recoveries in Insolvency Litigation
A very welcome decision for Insolvency Practitioners and assignees of claims was handed down on 14 July 2022 in the matter of P G D Limited (in liquidation); Manolete Partners Plc v Hope and Jones  EWHC 1801 (Ch).
In November 2021, the Insolvency and Companies Court handed down a judgment concluding claims in relation to breach of duty (progressed by Manolete as assignee of P G D Limited) and transactions at undervalue (progressed by Manolete as assignee of the Liquidator of P G D Limited). In handing down judgment, the court sought to limit the recoveries to Manolete to the amount required to discharge the creditors and the liquidation costs.
Manolete therefore sought to appeal this decision on the basis that the court had no jurisdiction to impose this limitation and that it was unjust to all those affected by it.
On 14 July 2022, Mr Justice Zacaroli granted Manolete’s appeal against a decision to limit recoveries to the amount required to discharge the creditors and the liquidation costs. In the conclusions of Mr Justice Zacaroli, it was recognised there were confines on the jurisdiction to limit recoveries in relation to the breach of duty element of the claim, which was not progressed pursuant to the statutory gateway under s.212 of the Insolvency Act 1986, but advanced by Manolete as assignee of the rights of P G D Limited. In further support of this decision, Mr Justice Zacaroli concluded that any discretion to limit recoveries to the amount required to discharge the creditors and the liquidation costs would be difficult to exercise if the consequence was to prejudice any third parties (which would include Manolete as an assignee of the claim) who were innocent of the wrongdoing which gave rise to the claim.
This appeal decision should provide clarity for Insolvency Practitioners and assignees alike to largely eradicate unconvincing arguments by defendants and their advisors that breach of duty claims which are not progressed through to the statutory gateway are restricted in value to the deficiency in the company. This decision of Mr Justice Zacaroli along with the Court of Appeal decision in the matter of Edengate Homes (Butley Hall) Ltd; Lock v Stanley  EWCA Civ 626, is positive news for litigation arising out of insolvent estates as it firmly shuts the door on two main tactics we have seen in recent months by delinquent defendants and their advisors in seeking to challenge legitimate claims.