High Court Judgment: Edengate Homes (Butley Hall) Limited (in liquidation)

The recent High Court judgment in the case of Edengate Homes (Butley Hall) Limited (in liquidation) [CR-2021-MAN-000037] provides some encouraging guidance for both insolvency practitioners and litigation funders in circumstances where a third party challenge to the IP’s decision to assign claims to a litigation funder is threatened.

His Honour Judge Halliwell dismissed (with costs) an application made by a director of a company under section 168(5) of the Insolvency Act 1986 to set aside a purchase agreement entered into by the liquidator of Edengate Homes (Butley Hall) Limited with leading litigation finance company Manolete Partners Plc in respect of a number of claims which the liquidator and company had against its directors and a number of associated family members. Section 168(5) of the Act states, “if any person is aggrieved by an act or decision of the liquidator, that person may apply to the court, and the court may confirm, reverse or modify the act or decision complained of, and make such order in the case as it thinks just.”

The applicant had argued before the court that she was a creditor of the company and the liquidator’s decision to assign the claims was perverse. In doing so, she relied upon the logic of the case of Re Edennote [1996] 2 BCLC 389. In that case the court had held that certain creditors had standing to apply for relief under section 168(5) and on the facts of the case the liquidator should have approached the respondents to the claim itself in order to ascertain whether they would be willing to negotiate a settlement of the claims prior to the liquidator entering into the assignment. The court’s decision was upheld on appeal.

In dismissing the application, Judge Halliwell agreed with the liquidator’s assertion that the applicant did not have standing to apply for relief because her own interest on the facts was adverse to the class interest of the creditors as a whole.

The judge further considered whether the assignment to Manolete should be set aside for reasons of perversity. Again on the facts the judge held it should not, recognising that the test of demonstrating perversity as set out in Edennote was a formidable one for an applicant to overcome and reiterating that the court should be reluctant to substitute its own judgment for a liquidator’s decision on what is essentially a “businessman’s decision.” Crucially the judge disagreed with the assertion made by the applicant’s counsel that the liquidator’s decision to assign the claim without taking prior legal advice rendered it unreasonable in some way, noting that despite the lack of legal advice there was nothing to suggest the liquidator was unaware of his legal position.

While the case clearly reinforces the very high hurdle which must be cleared by an applicant who wishes to challenge a liquidator’s decision to assign claims on the basis that the decision is perverse, it also demonstrates a liquidator who acts reasonably and fairly is very unlikely to see his actions successfully challenged by an aggrieved applicant who would perhaps have wished the claim against him had not been assigned to a funder with the motivation and resources to pursue it.

The full judgment can be found here.

Dominic Vincent
Manolete Associate Director for the North West