The New Year Starts with a Bang

Following on from a busy 2019, the New Year has started with very high levels of activity. Across all of our regional network, IPs and lawyers appear to be very much busier than they were this time last year.

The Key Performance Indicator that I keep the keenest eye on at Manolete is the number of new case enquiries we get in from IPs and solicitors each month. Looking back a year ago, the level was around 25-30 new case enquiries per month. That has increased pretty dramatically in the last few months. December 2019 saw 50 new enquiries, 80 for January (including one bulk lot of 20 cases from one IP firm) and then 50 again in the short month of February.

Our Investment Committee has also been accepting a far higher level of new cases for investment – with our acceptance rates up 50% on where they were a year ago. This is a great testament to the terrific investigatory work being done by IPs and their chosen lawyers before the case is referred to us – that makes it easy for us to say “Yes!”

However, the real acid test of the Manolete Model is the delivery of value back into Insolvent Estates. We are therefore delighted to have completed 28 cases (with settlements ranging from £27,000 to £1.8m) over the last 5 months. That is a rate of 1.4 case completions every week – delivering well over £7m to those Estates.

Brilliant IP Investigations + Excellent Lawyers + Manolete Finance = Fantastic Creditor Returns

We are immensely proud of supporting your work and look forward to a continuing very busy 2020.

Steven Cooklin, ACA ACSI CF
Chief Executive, Manolete Partners PLC

In this issue:

• Introduction from CEO, Steven Cooklin
• Time for a Spring Clean? Unlocking old cases by Dominic Vincent
• Arkin Again – Court of Appeal Judgment by Stephen Baister
• Manolete's Latest Recruit – James Martin, Consultant
• The Benefits of Expert Witness Reports by Lee Manning
• How would you hazard your own money? by Stephen Baister

Time for a Spring Clean? Unlocking old cases
By Dominic Vincent, Associate Director

One great part of working for Manolete is getting out and meeting IPs and their lawyers and having a better understanding of their particular work pressures.

More recently I have been asking IPs about older cases which may have stalled, even for some years. It is not surprising these cases tend to gather dust when newer cases arrive with better prospects on an already busy workload. Often the reason why the cases do not progress is because there are insufficient funds to pursue the monies owed to the creditors. But that does not mean these ‘problem’ cases cannot be realised if the right backing can be found.

This is where Manolete comes in. We take no view on the age of cases whether two, three, four years or even older - only on their merits. We are very well aware of the demands IPs face and why cases can slow to a stop. So please ask yourself if there are any cases which might benefit from another look.

There are also occasions when there is a bulk transfer between IPs perhaps in cases of retirement. This is an ideal opportunity to look afresh at older cases and consider what Manolete backing could bring and whether the value in the claim could be unlocked. Also IPs may, on occasion, come under regulatory pressure to complete certain cases or pressure from creditors.

I had a meeting myself recently with a well-known northern IP firm where we reviewed a set of “Director can’t pay” cases. The issues were familiar but some looked quite differently when Manolete became part of the equation. We promise to consider these cases carefully and where appropriate make an offer. That could include an immediate sale of the whole claim to us or a lower initial payment with the Estate retaining a 50%-90% interest in the eventual net proceeds. As ever, the IP and Estate is covered by Manolete’s full indemnity throughout the process.

So it could be in everyone’s interests for IPs to take some time to look at those ‘unloved’ cases on their shelves. The easiest thing to do is to contact the relevant Associate Director within our regional network of lawyers. We are very flexible and can set up a face-to-face meeting even at relatively short notice so that we can go through a number of cases at the same time.

IPs who have seen these cases revived have found it a weight off their mind. And very importantly, creditors get a fair return.

Arkin Again – Court of Appeal Judgment
By Stephen Baister

The Court of Appeal has confirmed that the Arkin cap is not a binding rule so judges have the discretion to order funders to pay more than they have spent on a case.

In its judgment of 25 February 2020 (Chapelgate Credit Opportunity Master Fund Ltd v Money [2020] EWCA Civ 246) the Court of Appeal has upheld Snowden J in Davey v Money [2018] EWHC 766 (Ch) in which he rejected the idea of the cap being a legal principle. In his view the Court of Appeal in Arkin v Borchard Lines Ltd had “simply [set] out an approach that it envisaged might commend itself to other judges exercising their discretion in similar cases in the future”; it was not, he said, “a rule to be applied automatically in all cases involving commercial funders, whatever the facts…”

Newey LJ (Moylan and Patten LJJ agreeing) accepted that in its ruling in Arkin the Court of Appeal had not laid down a binding rule:

“The terms in which the Court of Appeal expressed itself may well reflect its perception that a decision as to what, if any, costs order to make against a commercial funder is in the end discretionary. That would accord with section 51 of the Senior Courts Act 1981, which… is framed in entirely general terms…”

He went on:

“It is…possible to envisage circumstances in which application of the Arkin cap might not be felt ‘just’ and that even though, as in Arkin, a funder had met only a discrete part of the total costs.”

But he also warned that this did not mean that Arkin was to be disregarded:

“There will, I am sure, continue to be cases in which judges decide that it is right to follow the course espoused in Arkin, as Zacaroli J did in Burnden Holdings (UK) Ltd v Fielding.”

Whilst there are principles governing the award of costs, we need to remember that they are, in the end, always in the discretion of the court.

Steven Cooklin, Manolete CEO, said, “No doubt this judgment will have an impact on some, and possibly all, traditional Litigation Funding models – as clearly the downside risk exposure may now be significantly more than those companies would have modelled when assessing claims, risks and returns.

“However, it has zero impact on Manolete’s model. The vast majority of the claims we back are done via an assignment, here Manolete becomes the claimant. The concept of ‘funding a third party’ is simply redundant. On the small minority of cases where we do not take ownership of the claim via an assignment, we have always provided the Insolvency Practitioner (as the claimant) with a full adverse cost indemnity. So dependence upon the Arkin Cap was never a factor for Manolete.”

Manolete's latest recruit

James Martin

James joined Manolete in January 2020 as a Consultant working alongside Roger Dugan primarily in the Midlands region. Immediately upon qualifying as a Chartered Accountant in 1987 with Coopers & Lybrand, he moved into their restructuring practice, Cork Gully, working in Birmingham, East Anglia, Nottingham and the Potteries. He was successively head-hunted by Begbies Traynor, Moore Stephens and Crowe before relinquishing his Insolvency Licence in 2018 to concentrate on turnaround and non-exec roles. He is a Fellow of both the ICAEW and R3, remains close to the Restructuring community and is keen for Manolete to expand their help to practitioners in pursuing actions for creditors' benefit.

The Benefits of Expert Witness Reports
By Lee Manning, Manolete Non-Exec Director

The volume of claims being brought by office holders and litigation funders in the insolvency sector continues to grow steadily. Whether a claim is self-funded or externally funded, the biggest challenge remains controlling potentially spiralling legal costs which are to the detriment of all litigants.

One of the recurring regrets of litigants when reflecting on the conduct of a case, is invariably that they would have benefitted from obtaining objective expert input at an earlier stage of the process which could have led to considerable cost savings or an earlier settlement.

In many cases, the introduction of someone with specific expertise, whether with the intention of providing expert testimony at trial or simply to bring an independent ‘forensic eye’ to the litigation, can be an effective way to drive a case forward towards a solution or to persuade either party that settlement or withdrawal is preferable to continued litigation. (I should add that a great many of Manolete’s cases are settled even before experts are engaged.)

A respected expert can be a critical component of the litigation strategy as they bring an objective perspective and are able to focus on the key strengths and weaknesses in the available evidence without fear of backtracking or having to admit that something had been overlooked. They are invariably a more valuable resource when treated as an integral member of the team and updated regularly on the case progression.

In addition, an expert is likely to be well equipped to make a judgement on the data and documentation that carries most weight and can also helpfully guide the litigant’s legal team to what further documentation would assist the expert in providing his report and/or testimony.

The choice of a particular expert should centre around that expert’s relevant experience with the technical and practical aspects of the case rather than placing undue emphasis on the degree of experience the expert has of undergoing cross-examination.

I once encountered an expert acting for ‘the opposition’ who agreed with many of my points when we were preparing our Joint Experts’ report for the court - he rarely sought to persuade me of the merits of his opinions which I disagreed with. When I asked him about the extent of his experience in dealing with insolvency risk and working capital issues, he told me that it was limited but that his principal strength was that he was “an expert in being an expert.“ Needless to say, the case settled before it reached court.

The preparation of the expert’s report is an iterative process and typically requires a series of drafts and meetings with the legal team (and the office holder’s team) before it is in an acceptable format. This makes the process take considerably longer than some instructing solicitors might expect, a matter of a number of months rather than weeks in most cases.

Finally, the expert is not engaged to win the case but taking on board his independent opinions especially after sight of the joint reports, should considerably assist both parties in reaching a conclusion to the litigation that leaves them with a clear rationale to justify the end result: win or lose.

R3 Annual Conference

Manolete will be a key sponsorship partner again at R3’s Annual Conference this year which is the 30th and is being held between 13-15 May at Beaumont Estate in Windsor. With over 200 delegates, the R3 Annual Conference is the number one forum for debate and networking in the insolvency, restructuring and turnaround profession with expert speakers, hot topics in the profession and multiple networking opportunities.

How would you hazard your own money?
By Stephen Baister

As we all know (or should) an insolvency office-holder is a fiduciary. Ferris J reminded us of that in his well-known 1998 judgment on remuneration, Mirror Group plc v Maxwell.

As well as looking at the remuneration of insolvency practitioners he reminded them that they should scrutinise the legal costs of any solicitors they were instructing. Instructing solicitors like embarking on any course of action, he said, required the office-holder to think about how he or she would “hazard his own money” and act accordingly.

It has always seemed to me that what Ferris J said must have implications for the process an office-holder ought to go through in considering how any litigation on which he or she intends to embark should be funded. If there is to be a success fee (whether under a CFA or DBA or in less direct form by payment of an element out of any recovery to a funder) it should be reasonable in all the circumstances. The office-holder must, if I am right, ask which of the available funding possibilities is the most reasonable, having regard to risk and all the other factors properly to be taken into account; and answer that question by reference to Ferris J’s proposition that he must ask whether he would hazard his own money in the way he plans to hazard that of the estate under his control.

I suggest that this means he should at least look at funding in every case before he embarks on litigation.

Dr. Stephen Baister
Non-Executive Director, Manolete Partners PLC