Litigation Finance Insider article - Litigation Funding in the UK Insolvency Market
For the past twelve years, Steven Cooklin has quietly been building a successful litigation finance company that is laser-focused on the UK insolvency market.
Steven sits down with us to explain how funding in this space works, what he sees as the risk and opportunities in the next 12 months, and more.
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1) What differentiates litigation funding in the insolvency market from the broader litigation finance market?
It is the one area of the law where a third party can buy most claims outright. This provides the IP and the Insolvent Estate with maximum risk protection in the event that the case is lost.
Generally, the claims are more varied and there are a large number of smaller claims. Which is why Manolete’s minimum claim size is just £20,000.
Our largest claims run to over £70m.
Insolvency litigation has unique challenges – very often you are suing the people who ran the business and they therefore have access to far more information than the claimant. A high risk/high return area of the funding market where it pays dividends to have an expert specialist in-house team and many years of experience.
2) How has litigation funding evolved in your market since you opened up shop in 2009?
Litigation Funding was almost non-existent in the UK insolvency market in 2009, other than for the very largest multi million pound claims.
Having designed specifically tailored, exclusive insolvency litigation financing products with the late and brilliant Gabriel Moss QC, we spent many years travelling the country to explain the offering to insolvency practitioners (“IPs”) and insolvency lawyers. Slowly but surely, they began to adopt our approach. Having seen the results those IPs and lawyers always came back with further cases on multiple occasions. Our results have always been our best form of marketing.
The passing of the Small Business Enterprise and Employment Act 2015 was an important milestone. This enabled IPs to sell their own Insolvency Act claims to third parties. Previously they could only create value for creditors and manage risk by selling Insolvent Company claims.
The application of the Jackson Reforms to Insolvency Litigation in April 2016 was important. The dominant funding model for insolvency claims had been CFA/ATE to that point. But the Jackson Reforms made that model much less attractive for IPs as the CFA uplift and the ATE premium had to be paid out of the damages – leaving little if anything for the IP fees and creditor dividend. Manolete’s model had always simply paid the legal fees as incurred and we never use ATE, so our model was unaffected by the reforms and therefore became the clear optimal solution to maximise returns to creditors. We also always pay an initial non-refundable amount in cash upfront on all of our cases. That is a welcome contribution to historic IP and lawyer WIP. The proceeds from our IPO have enabled us to be even more generous in that area. But that is only fair – those professionals have often done crucial unpaid work before they approach us. We must contribute to that fairly.
3) What are the key metrics you focus on?
As so much of our work comes from repeat referrals, we make our relationships with IPs and lawyers the number one operating metric. Rare but difficult situations arise in litigation and we will always choose to sacrifice our profit to protect the Creditor Estate and the IP. For example, the one case that we have lost at trial in the English Courts resulted in Manolete bearing a full write off of our costs and payment of all adverse costs.
Owning and being in control of most of our cases has driven rapid best-in-class returns into the Insolvent Estates on a consistent basis over our 11-year history. We also fund IPs and those funded cases have had the same terrific results. Manolete only ever makes a return once all costs are paid and Manolete never receives more than the Insolvent Estate. When we win, the Estate wins and wins more. If the case results in a loss we indemnify every penny, including adverse costs. The IP cannot lose.
4) Manolete went public in December 2018. How has this helped your firm? Has it hindered in any way?
That has been a huge positive. The point of Manolete is to give full protection to the IP and the Insolvent Estate while attempting to maximise fast returns to creditors. Litigation is an expensive and risky endeavour. So being a large, high profile and very well financed public company is crucial. Any thing less means that the IP is exposed and the lawyers risk not being paid their hard earned fees.
5) Is there a particular claim that Manolete has funded that you are most proud of?
Hard to choose one out of the nearly 600 lifetime cases, but a case we funded for Chris Laughton of Mercer & Hole stands out for me. Working with his team and Howard Kennedy, we managed to increase the creditor dividend from 4p in the £ to over 60p in the £ by making a spectacular return on the claim. Without our funding, the Estate would likely not have received a penny from the case – that is very often the situation.
6) What are the risks and opportunities you see for your business in the next 12 months?
The Covid pandemic has created risks and opportunities. Protection of our staff has been paramount. Due to extraordinary Government support measures many UK companies have also been protected, resulting in sharp declines in the number of insolvencies. However, as has been widely predicted, that situation is likely to reverse once the Government inevitably withdraws those measures. Helping Britain Bounce Back successfully will be the biggest challenge for everyone involved in the Turnaround Restructuring and Insolvency Sector. But we are blessed with fantastic professionals working in those sectors – we are in very safe and capable hands.
Founder and Chief Executive
Manolete Partners Plc