Maximising value for creditors by assigning insolvency litigation claims to litigation funders
An office holder’s duties are clear. They include:
- investigating what assets remain in an estate
- investigating potential claims against directors and other third parties
- and identifying what recoveries can be made for the estate.
IPs face several issues in considering how best to realise claims for value, including how to finance them.
The choices in financing any claim include: (a) conditional fee agreements (CFAs), (b) damages-based agreements (DBAs), (c) third-party funding or assignment or (d) creditor funding. An IP will exercise commercial judgment to determine the most suitable finance model and negotiate appropriate terms.
Some IPs have traditionally preferred CFAs or DBAs and some believe third-party funding agreements or assignment of claims should be reserved for particularly large or complex cases. Some are under the impression that litigation finance is always expensive and not suitable for ‘run-of-the-mill’ cases. There has been a renewed discussion around “testing the market” for finance of claims. In recent decisions, a challenge to assignment was dismissed and a proviso limiting recovery by an assignee not upheld.
Company claims are assets of the company which can be assigned by a liquidator or administrator exercising his powers. The power to assign is extended to office holder claims for fraudulent and wrongful trading, transactions at undervalue and preferences.
The use of CFAs/DBAs requires expensive ATE insurance and may not properly deal with security for costs challenges. There is often significant work in progress on a contingent basis to attempt to secure a ‘deal’ with the target which can lead to inefficiencies and increased costs with the target stalling and the claim may not be ultimately issued. These arrangements do not provide for disbursements such as court fees or expert witness fees. As with any insurance policy, cover may prove to be inadequate or the insurer may dispute liability or quantum. This is to be contrasted with an indemnity.
An IP considering litigation finance should be aware the market continues to evolve with more funders offering diverse products which may be difficult to measure and compare on a like-for-like basis. It is also important to assess the covenant strength of the funder providing any indemnity for adverse costs.
In Re Edengate Homes Ltd a defendant applied to the court to set aside an assignment of claims to Manolete. The application was dismissed at first instance and an appeal against that decision was dismissed by the Court of Appeal. The Court of Appeal rejected the suggestion that the liquidator was under a duty to “test the market” and held that the assignment to Manolete was not perverse.
This welcome decision confirms the long standing reluctance of the court to interfere with discretion exercised by office holders in making commercial decisions. The Supreme Court refused permission to bring a further appeal.
In Re PGD Ltd the judge at first instance imposed a proviso on recoveries by Manolete as assignee, limited to the sum needed to pay the company’s creditors and liquidation costs. Manolete appealed and Zacoroli J allowed the appeal and set aside the proviso, considering it wrong in principle to deprive an assignee of any part of the proceeds of the assigned claims.
An IP has a duty to realise assets comprised in the insolvent estate for value. Such assets include company and office holder claims. A purchase or funding agreement which includes a complete indemnity at no cost to the estate ensures that realisation can be made for the benefit of the estate whilst avoiding risk.
Q and A
Associate Director for the North East
What is your legal background?
At the start of my career, I had intentions of being an employment lawyer, however during my training contract I was easily persuaded that insolvency was the area of law for me. I spent a decade at a law firm in Newcastle working almost exclusively in contentious insolvency, as well as doing some related commercial litigation such as shareholder and business disputes. My main client base was Northern insolvency practitioners.
How long have you been at Manolete?
I joined Manolete in January and I definitely had to hit the ground running. I don’t think I’ve had a quiet day yet, but I thrive in a busy environment so that suits me just fine. I work three days per week and I look forward to the years ahead.
What have been your main impressions?
Prior to joining Manolete, I had learnt of their ability to achieve high value settlements early in cases, but did wonder if it sounded slightly ‘too good to be true’. However… this has certainly been my experience! I’ve already had so many cases where offers to settle have come in much earlier than when I had acted directly for IPs as a solicitor. It appears the Manolete name does indeed leave proposed defendants in no doubt the claim will be pursued through to trial so early settlement is a good idea. However, while an early settlement is great, it also needs to be at the right level to add value to the estate and our priority is always achieving that.
What are the other highlights?
I really enjoy working with a wider range of IPs, and for the first time in my career, working with other solicitors and not just being on the other side to them. It’s not only really interesting to see how different people work, but it also helps broaden my own knowledge and strategy base and of course to get the best results on our cases. I also get to present to audiences at both larger events, such as R3 conferences, as well as presenting in-house to all levels of insolvency practitioner teams. I have always enjoyed presenting and it’s a great way to add value to the Manolete offering.
What do you do outside of work?
Outside of work my favourite thing to do is travel. My husband and I are slowly making our way around the world, going to new countries and cities each year. Closer to home I enjoy taking regular Spanish language classes, indoor and outdoor cycling, and (much to my husband’s annoyance) DIY and home renovation.
Stephen Baister Writes
I recently attended a lecture by Joseph Curl KC. As usual, I learned a lot: Joe is a great speaker, both in and out of court.
His talk touched briefly on the old offence of barratry, which involved officiously instigating or encouraging the prosecution of vexatious or repetitious litigation for profit or to harass someone. The common law offence of being a common barrator was abolished by section 13(1)(a) of the Criminal Law Act 1967. I had heard of maintenance and champerty, but had never come across the words barratry and barrator until I joined Manolete and started looking at that area of the law; and even by then they were only of historical significance.
I miss some of these old (and occasionally comic) legal terms. Some featured in matrimonial law. I remember learning about jactitation of marriage, which was a cause of action that lay against someone falsely claiming that he or she was married to another person. Like a lot of what I learned about, it never came up in real life. I think it was abolished because no one used it any more.
Criminal law was another fruitful source of odd words: misprision was one; another was the use of the verb “utter,” not to mean “say” but in the sense of relying on a forged document. I have no idea whether these expressions still survive. Plenty of odd words still do, however: think of “hotchpot” or “agistment” and shipping terms such as “demurrage”. There is a poetry in them. It is a shame that I do not find many opportunities to use (or utter) them.
A particular favourite of mine is bottomry, another term from shipping law, though I have only a vague idea what it is. It features, however, in an anecdote about the 1982 obscenity trial instigated by Mary Whitehouse against Michael Bogdanov in connection with his production of Howard Brenton’s play, The Romans in Britain, which featured a scene of male rape. Mrs Whitehouse brought a private prosecution under s 13 of the Sexual Offences Act 1956 which made it an offence for a man to commit an act of gross indecency with another man, whether in public or private, or to be a party to the commission by a man of an act of gross indecency with another man, or to procure the commission by a man of an act of gross indecency with another man.
Jeremy Hutchinson QC and Geoffrey Robertson were counsel for the defence. An anecdote records Hutchinson and Robertson talking about the judge assigned to hear the case. Robertson told his leader he was to be Mr Justice Staughton. Hutchinson claimed he had never even heard of him, but when he discovered that Staughton was an expert on the law of bottomry he thought that was why he had been given the case. Presumably someone, apart from me, didn’t know what bottomry really was.
Pro Bono Scheme - City Law School
Manolete is delighted to be contributing to the funding of a pro bono scheme staffed by volunteer barristers from the Chancery/Commercial Bar and students at City Law School and students at City University.
Legal volunteers are sent to the High Court Rolls Building on company winding up day to advise and support directors who are attending without representation and in some cases provide advocacy.
Funds from Manolete over the next three years will go towards the costs of running the scheme, including payment of their Bar Standards Board licence fee and building a website.
Ms Marian Riley-Poku, senior lecturer at City Law School and the founder of the pro bono scheme said,“Thanks to the funding from Manolete we can expand our online presence by creating a website and provide further practical legal experience for student volunteers and interns.”
All Adverse Costs are Covered by our Full Indemnity
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.
TRI Conference - 8 December
Manolete is delighted to resume its headline sponsorship for the Turnaround, Restructuring and Insolvency (TRI) Conference 2022. It is an excellent forum attracting turnaround specialists, insolvency practitioners, solicitors and barristers.
Click here to visit the TRI Conference 2022 website.
Manolete as headline sponsor has a few delegate tickets for guests. Please contact Jeremy@manolete-partners.com.