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Rachael Rothwell, editor of Litigation Funding, reports on Manolete’s £10m co-investment and shareholder agreement with Burford Capital.

Business booming in insolvency funding

Tuesday 30 July 2013 by Rachel Rothwell

Rachel-Rothwell_101. Manolete Partners PLC

With most areas of civil litigation beginning to feel the effects of the Jackson reforms, there was some interesting news this week from the insolvency quarter – an area that has, for the time being, managed to dodge Jackson’s bullet.

Insolvency has been a thriving area for third-party funding, with specialist funder Manolete Partners Plc growing 100% year on year since it was set up in 2009. Last year, well-known private equity investor John Moulton bought into the firm, and now third-party funding giant Burford has announced that it is investing up to £10m in Manolete. So why has this niche funder been so successful?

When a company goes bust, there are often creditors that owe it cash, but the administrators need money to pursue the claims. Manolete buys claims directly from insolvent companies, and pursues them in its own name, using its own external lawyers. Where it succeeds in recouping cash that is owed to the insolvent company, it returns a share of this back to the insolvent firm’s creditors. The firm also funds individual insolvency practitioners to bring claims in their own name.

But is business booming for the more mainstream third-party funders to the same extent? Not necessarily - although those funders that publish their results do show good growth. Insolvency is a special case, because it is a distinct area where the government has chosen not to implement Jackson until April 2015 – not least because HM Revenue & Customs is often one of the biggest creditors in an insolvency, and the civil justice reforms will affect the government’s own bottom line.

In other areas of commercial litigation, awareness of the opportunity to share litigation risk with funders is certainly becoming better understood by litigators, as the profile of third-party funding is rising. But it is still too early to see how funding has been affected by the Jackson reforms – and funders and solicitors alike are still waiting to catch sight of the amended version of the damages-based agreement regulations, to see how DBAs may change the relationship between lawyer and funder.

All this will be under discussion in October at an event examining the impact of Jackson on commercial litigation funding, hosted jointly by Litigation Funding magazine and the Law Society.

Rachel Rothwell is editor of Litigation Funding magazine, providing in-depth coverage on costs and the financing of litigation.

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