Hybrid Claims: The Not-So-New Normal

How time flies; it’s now approaching two and a half years since the June 2021 decision in Manolete v Hayward and Barrett [2021] EWHC 1481 (Ch).

Before that judgment was handed down, it was customary for company and office holder claims in respect of a particular company to be brought together by way of Insolvency Act 1986 (“IA”) application notice in the Insolvency and Companies Court. Usually, antecedent transaction claims under the IA (e.g. transactions at an undervalue and preferences) will also give rise to a corresponding breach of duty claim against the relevant company’s director(s) under the Companies Act 2006 and at common law. Both claims flow from the same factual matrix and fall within the ICC’s remit. An assignee being unable to use the summary procedure under section 211 IA, this practice of bringing both claims together was therefore a sensible and proportionate approach.

The upshot of Hayward is that any party wishing to bring a company claim (whether that be the office holder or an assignee) has to issue a Part 7 claim even where there are related office holder claims in the same insolvency, in which case two sets of proceedings are required (“Hybrid Claim”). This entails the payment of the issue fee for a Part 7 claim of up to £10,000, which is – thankfully – no problem for Manolete as a Plc with abundant financial reserves. The only bad news is for the respondents because any acceptable settlement offer will have to factor in this additional cost. As such, payment of the Part 7 fee provides another incentive for respondents not to let things slide to the point where commencing Hybrid proceedings proves necessary.

Whenever we issue a Hybrid Claim, we immediately apply for the Part 7 claim to be transferred to the ICC and consolidated with the application notice and for the Part 7 claim be treated as if commenced by way of application notice. Pleasingly, Chancery Masters and ICC Judges have been very receptive to this modus operandi, normally making such orders on the papers.

Our whole approach at Manolete is informed by the objective of maximising returns to the insolvent estate of the company whose claims (and those of its office holder(s)) we have purchased or are funding. As such, we always seek to agree directions through to trial in Hybrid Claims to avoid both parties incurring unnecessary costs. We advocate as streamlined and efficient a procedural path as possible by, for example, avoiding costs budgeting and expensive Part 7-style disclosure exercises. We achieve the latter by arranging for the respondents to inspect the company’s books and records.

Of course, not all respondents share our desire for proceedings to be dealt with as cost and time-efficiently as practicable. One way in which some respondents’ advisers have sought to delay and drive up the costs of proceedings (ultimately, against their clients’ interests) is to argue that certain Practice Directions relating to disclosure and trial witness statements should apply to the relevant Hybrid Claim, notwithstanding the Court’s order that the Part 7 claim should proceed as if commenced by insolvency application notice. Our position on this is consistent and clear: the benefit of such an order is that only one set of procedures need be followed in relation to the proceedings as consolidated. This enables Hybrid Claims to be dealt with expeditiously and proportionately, in accordance with the Overriding Objective. Contested applications to introduce elements of Part 7 procedure are patently at variance with, and undermine, that advantage. Fortunately, as pioneers of Hybrid Claims, we have become adept at resisting such applications and our focus on proportionality and what will assist the trial judge stands us in good stead.

While things have very much been business as usual since the Hayward decision, we welcomed last year’s report on the operation of the Insolvency (England and Wales) Rules 2016, which stated that the Insolvency Service will consider possible changes to the Rules and their implications to determine whether the scope of insolvency applications should be amended. Until then, we will continue to use our unparalleled experience and expertise in these types of claim to achieve the best possible outcome for insolvent estates.

Henry Glen
Assoiciate Director (London)

Q&A

Jean Boldero
Associate Director for the North-West

What is your legal background?
I qualified as a solicitor in 1987, initially working in Employment Law, before joining specialist insolvency practice William Prior & Co (subsequently Dibb Lupton Broomhead & Prior) in 1989. I jumped ship to Addleshaw Sons & Latham (now Addleshaw Goddard) with 30 of my Priors’ colleagues a year later and for the next 32 years I played a pivotal role in developing and then leading Addleshaw Goddard’s insolvency litigation practice in Manchester.

How long have you been at Manolete?
I joined Manolete in January 2023 and I work alongside Dominic Vincent as an Associate Director in the North West region.

What have been your main impressions?
My initial impressions of Manolete were of a professional and innovative organisation. As a referrer of cases to Manolete from private practice I hadn’t appreciated the size and geographical spread of the legal team. I admit to being surprised by the calibre and diversity of the legal and support teams in London and across the regions. I haven’t yet come across a case where the legal issues are novel to the team. The work environment is collaborative and respectful and I like the flat structure.

What are the other highlights?
The work is interesting and it's been great to get to know a host of IP practices and insolvency lawyers I hadn’t worked with before, as well as having the opportunity to maintain my existing contacts. The lack of unnecessary admin and the streamlined decision-making process are very refreshing. I was tremendously happy to say goodbye to timesheets! A significant number of the cases I have recommended for purchase or funding would not have been pursued but for Manolete’s involvement – we play to win and assisting the IP/lawyer team to achieve a recovery and return to creditors has to be the highest highlight of all.

What do you do outside of work?
I’m a bit of a culture vulture – theatre, art, music (indie of course). Country walks (avoiding hills). Wandering around John Lewis’ home furnishings department looking for inspiration.

Stephen Baister writes
The Human Factor

Most of the time we read judgments for the law. Just occasionally, though, they include passages that give us an insight into the way judges think more generally: they may illuminate an aspect of the case in which judgment is being given, but at the same time have a wider reach. They have a human factor about them. Here are a few examples.

The first passage is about clients wanting two inconsistent things and comes from the judgment of Sedly LJ in Queen Elizabeth's Grammar School Blackburn Ltd v Banks Wilson [2001] EWCA Civ 1360 a negligence case:

“Clients, I know, want two inconsistent things. They want confident advice on which they can act, and they want cautionary advice about the risks of doing so. It is a solicitor’s unhappy lot to have to try to satisfy both requirements simultaneously.”

Who could disagree?

Wishful thinking of a particular kind was noted by Mann J in Tamlura NV v CMS Cameron McKenna [2009] EWHC 538 (Ch). He coined the term “litigation wishful thinking” to cover a situation in which, “as is not unfamiliar in litigation, regret over what happened has led to a search for those who might be blamed, and has tinted the spectacles through which the events are now viewed.”

Like Sedley LJ’s “inconsistent things” proposition, “litigation wishful thinking” will be familiar to all lawyers.

Sometimes judgments reveal judges’ insights into their own failings (or those of other judges). In Volpi v Volpi [2022] EWCA Civ 464 Lewison LJ noted the existence of a kind of judicial esprit d’escalier, acknowledging that, in some cases, reasons given in a judgment “will always be capable of having been better expressed.” That certainly applies to me; some of you may think the same about statements or letters you have drafted.

Sir Robert Megarry, in Erinford Properties Ltd. v Cheshire County Council [1974] Ch 261, said, “No human being is infallible, and for none are there more public and authoritative explanations of their errors than judges”. He is known as the judge who once had to give a judgment that involved disagreeing with what he had said as an author in Megarry and Wade on the Law of Real Property. He said:

“The process of authorship is entirely different from that of judicial decision. The author, no doubt, has the benefit of a broad and comprehensive survey of his chosen subject as a whole, together with a lengthy period of gestation, and intermittent opportunities for reconsideration. But he…lacks the advantage of that impact and sharpening of focus which the detailed facts of a particular case bring to the judge. Above all, he has to form his ideas without the purifying ordeal of skilled argument on the specific facts of a contested case. Argued law is tough law.”

In fact, six years later the Court of Appeal decided that Megarry the judge had got the law wrong and Megarry the author had got it right (see St Edmundsbury and Ipswich Diocesan Board of Finance v Clark (No 2) [1975] 1 WLR 468), thus proving that judges can even be wrong about getting it wrong – assuming, of course, that the Court of Appeal got it right.

The human factor again.

IP ENGAGEMENT
'Lunch and Learn' Sessions

We are delighted to invite you and your colleagues to a bespoke Lunch and Learn session, devised to enrich the knowledge and skills of Insolvency Practitioners in relation to contentious insolvency.

This session is a platform for sharing our insights and expertise which may also assist with your requirements for Continuing Professional Development.

Our Lunch and Learn sessions can be adapted to suit the particular needs of your team, but typically comprise:

• A one-hour informative session led by litigation finance industry experts from Manolete, with additional time for discussion and Q&A.
• The option to host the session at your office, online, or as a hybrid event, starting in the new year at a time that suits you.
• A focus on practical insights and shared experiences, rather than formal legal training, to foster an environment of collaborative learning.
• The present options are (1) focus on insolvency litigation or (2) bounceback loans.

Please let us know if this would be of interest.
Email: events@manolete-partners.com

Kelly Jordan
Assoiciate Director for the North-East

CASE STUDY
The Manolete Model in Action

Manolete periodically releases anonymised case studies that highlight the outstanding benefits of our unique model.

This case concerned a motor vehicle retailer; the IP had been working to resolve the case for almost four years to no avail, before Manolete took an assignment.

The claims were for repayment of an overdrawn loan account and for breach of duty arising from the overdrawn loan account, payments to connected parties and unlawful dividends. The value of the claims totalled £230k.

One of the directors was believed to be outside of jurisdiction (which would make it difficult to pursue) although had instructed lawyers in the UK.

The limitation date was fast approaching therefore proceedings were issued without hesitation, demonstrating our commitment to pursue the claims to the fullest extent. This prompted a swift settlement of the claims (within four months of issue).