September 21st 2021

Welcome to our fourth newsletter of 2021

This newsletter is a regular update to all our IP, solicitor and barrister contacts. It contains changes to our growing team, updates on the Manolete business model which we hope will be helpful to you, as well as key judgments and articles of interest.

In this issue:

  • End of CIGA Measures - Steven Cooklin, Chief Executive

  • Debt Respite Regulations – Breathing Space, Judgment Debts and Costs Orders by Ronan Butler

  • TRI Conference 9 December – Manolete Headline Sponsor

  • Helping the Office-Holder to Discover the Truth by Stephen Baister, Non-Executive Director

End of CIGA Measures

I hope you all enjoyed a well-earned summer break whether staycation or you managed to get abroad. I returned to see some encouraging fiscal indicators showing the economy bouncing back.

We all know that despite a very welcome rise in business confidence there are many companies who have been just clinging on for some time now. The recent announcement that the “temporary measures” contained within the Corporate Insolvency and Governance Act 2020 will cease at the end of the month, was expected. A return to ‘normal’ insolvency processes is welcome, if the economy is to successfully reshape itself for a better future.

Even so the Manolete team has been well occupied with a substantial workload. The whole insolvency sector is now anticipating a growth in appointments over the coming months. Creditors' Voluntary Liquidations (CVLs) are already up to pre-pandemic levels and have been so for a few months now.

I would also like to take this opportunity to welcome our new Chairman to the Manolete Board, Lord (Howard) Leigh who joins today in place of Peter Bertram. Peter’s contribution to the company has been incalculable, as he helped steer us to becoming a listed company and establishing our position. Our very best wishes to him.

Steven Cooklin

Chief Executive

Debt Respite Regulations – Breathing Space, Judgment Debts and Costs Orders

The Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 (Debt Respite Regulations) came into force on 4 May 2021 and seek to provide individuals with legal protection from creditors.

The two types of protection provided by the Debt Respite Regulations are: a standard breathing space moratorium of up to 60 days in any twelve-month period; and a mental health crisis breathing space moratorium which lasts as long as the crisis treatment, plus 30 days after the treatment stops. The effect of each moratorium is to stop creditors progressing claims on a qualifying debt or continuing such claims, including any enforcement action.

In Axnoller Events Ltd v Brake and another (Costs) [2021] EWHC 1500 (Ch), the High Court considered the impact of the Debt Respite Regulations on a judgment debt and costs order.

Following a failed recusal application on 2 May 2021, the Court ordered the Brakes pay the costs of the application on the indemnity basis, to be assessed if not agreed (the costs order). The costs were subsequently not agreed and the issue before the Court in this instance was the quantum of those costs and an application for an interim payments order against the Brakes. The Brakes resisted the order sought on numerous grounds, including that one of the Brakes was subject to the mental health crisis breathing space moratorium and making the order would not benefit anyone. The creditor resisted the Brakes’ position on the basis that the interim payments order sought was not a “moratorium debt” within the meaning of the Debt Respite Regulations and even if it was, the order sought would not result in any enforcement action progressing.

The Court noted the protection provided by the Debt Respite Regulations was designed to prevent creditors from enforcing debts in certain circumstances by imposing a moratorium. The Court noted a moratorium debt is any “qualifying debt” (which includes any amount a debtor is liable to pay under or in relation to a court judgment) which satisfies three conditions.

  • The first condition is that the debt “was incurred by a debtor in relation to whom a moratorium was in place”.
  • The second condition is that it was owed by the debtor when the application for the moratorium was made.
  • The third condition is that the debt advice provider informed the Secretary of State about the debt.

In this case, the Court proceeded on the basis that the costs order made on 2 May 2021 created a contingent liability for an uncertain amount (costs to be assessed if not agreed) and was made prior to the commencement of the mental health crisis breathing space moratorium on 7 May 2021.

In the circumstances, the costs order only created an unliquidated contingent liability and not a debt under the Debt Respite Regulations. The Court found that an order for a payment on account would not be a moratorium debt and also found the creditor would benefit from the order even if it could not be enforced straight away. In the circumstances, the Court found there was no valid reason not to make the order sought and required the Brakes to pay £15,391 by 18 June 2021, which was 70% of the claimed costs.

Ronan Butler

Ronan Butler
Associate Director

Manolete, Headline Sponsor for TRI Conference

Manolete is delighted to resume its headline sponsorship for the Turnaround, Restructuring and Insolvency (TRI) Conference for 2021. The 5th edition of the TRI Conference will be back on 9 December at the Bankside Hilton.

The face-to-face event will bring together turnaround specialists, M&A advisors, insolvency practitioners, lawyers and funders to share practical lessons from real-life business rescue case studies. All guidance will be followed to ensure a safe, practical and pleasant experience. To book your place at this year’s conference, please click here to visit the TRI Conference 2021 website.


Helping the Office-holder to Discover the Truth

The purpose of the powers of an investigation into the affairs of an insolvent company were explained by Buckley J in In re Rolls Razor Ltd in a passage subsequently approved by the Court of Appeal in Re Esal (Commodities) Ltd:

“The powers conferred by section 268 [now s. 236 Insolvency Act 1986] are powers directed to enabling the court to help a liquidator to discover the truth of the circumstances in connection with the affairs of the company, information of trading, dealings, and so forth, in order that the liquidator may be able, as effectively as possible, and, I think, with as little expense as possible […] to complete his function as liquidator, to put the affairs of the company in order and to carry out the liquidation in all its various aspects, including, of course, the getting in of any assets of the company available in the liquidation. It is, therefore, appropriate for the liquidator, when he thinks that he may be under a duty to try to recover something from some officer or employee of a company, or some other person who is, in some way, concerned with the company’s affairs, to be able to discover, with as little expense as possible and with as much ease as possible, the facts surrounding any such possible claim.”

The same reasoning necessarily applies to the bankruptcy equivalent, s. 366 IA 86.

The power to compel a witness to attend court for examination under oath is of some importance, then, to the effective operation of the insolvency regime. It needs to work.

In a meticulously reasoned judgment given earlier this year, Joanna Smith J implicitly recognised this in differentiating an examination under s. 236 from the generality of judicial proceedings, not least because it does not decide an issue between the parties, holding that witness immunity did not attach to the examinee. To the surprise of many, she has been reversed by the Court of Appeal (Al Jaber v Mitchell [2021] EWCA Civ 1190) which took the opposite view, holding that the rule on immunity did apply. Whilst Asplin LJ sought to reassure, saying that “affording immunity to examinees in relation to statements made only in the section 236 process does not diminish [the witness’s] obligations,” witness immunity will inevitably be perceived as depriving examinations of an element of clout.

At Manolete, we recognise the hard work IPs put into investigating the insolvencies to which they are appointed and how effective a tool examination can be. That is why we will, in appropriate cases, fund an investigation or recognise the work an IP will often have done before coming to us as part of the terms on which we offer funding or take an assignment of a case.

We understand that the Court of Appeal decision in Al Jaber v Mitchell may be going to the Supreme Court. We hope it does and that Joanna Smith J’s view ultimately prevails.

Image of Stephen Baister

Stephen Baister
Non-Executive Director