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:

• The Manolete Difference by Steven Cooklin, Chief Executive

• Recent Notable Court Cases by Andrew Cawkwell, Associate Director

• The Truth of Documents? by Stephen Baister, Non-Executive Director

The Manolete Difference

Having been extended twice, it is looking increasingly likely the temporary measures in the UK Government’s CIGA legislation, which have significantly reduced the flow of insolvencies, will end next month. Consequently, our sector is likely to get increasingly busy for an extended period. This is, perhaps, an opportune moment to summarise the key features of Manolete’s offering to the insolvency sector.

Manolete started financing insolvency claims for UK IPs in 2008. We have now supported over 630 UK insolvency claims for hundreds of IPs and their teams throughout the UK. Our service and offering are well liked – every IP who has signed up for our support, having seen fast results paid into insolvent estates, has always returned with further claims. We either take an assignment of the claim or we fund the IP to litigate the claim. Nowadays, most IPs prefer the former. Whether buying or funding your claim the following applies:

• We always pay a significant, non-refundable sum immediately into the Estate. This will usually represent a meaningful contribution to IP and lawyer WIP;
• The Estate retains at least a 50% (rising to up to 90%) interest in the net proceeds of the claim (net only of external legal and related costs);
• Alternatively, we can offer a full 100% buyout of the claim for a much larger one-off cash sum (enabling your rapid closure of the Liquidation);
• The IP always gets to choose the solicitor firm to work on the claim – often the incumbent firm – even when we have taken a full assignment;
• Manolete is also able and willing to pay for IP time costs for any crucial further investigation work needed to support the claim;
• Once our finance is in place, solicitor firms are then paid as the various stages of the work are completed. We do not use CFAs;
• Whether funding or buying your claims, the IP and the Estate is given a full cost indemnity at no extra cost whatsoever. We do not use ATE insurance, this maximises the returns to creditors as there are no large payments to insurance companies for expensive ATE premiums;
• No defendant has ever been successful is obtaining a security for costs order on any case backed by Manolete;
• Should the claim end in a zero recovery/failure/abort, Manolete simply writes off all of its costs. The IP retains the initial consideration referred to earlier, solicitors and counsel retain all their fees, of course. If necessary, we pay the adverse costs;
• Although a number of brokers have implied they represent Manolete, they do not. Brokers charge very large commissions and often try to ‘hide’ these in the cost of funding to the cost of the Estate. All IPs and insolvency lawyers know us – please just contact us directly;
• Even where we have taken an assignment of a claim, the IP and their team remain as fully engaged in the claim as they wish, often attending mediations and Without Prejudice meetings with us and alongside key creditors such as HMRC;
• Our key ethos is partnership, with the IP and the legal teams. We are there to support their tremendous work. Manolete only receives a penny in profit once all legal and related costs have been paid. When you win, only then do we win and never more than you.

Over the last 12 years, IPs and insolvency lawyers will have seen a number of imitators of Manolete’s offering. However, invariably these firms have disappeared as quickly as they arrived. A cursory look at Companies House would show they simply never had the balance sheet to support your claims, let alone the necessary expertise. If the funder fails, the IP is potentially dangerously exposed to costs and lawyers’ fees go unpaid. Those funders were not and are not fit for purpose in our highly regulated industry.

With Stephen Baister on our Board of Directors and an in-house team of truly superb insolvency lawyers, Manolete has been listed on the London Stock Exchange since 2018. We are here to serve you in the incredibly important work you do.

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

Recent Notable Court Cases

Recently I have been highlighting cases of interest for the insolvency sector in the IPA’s online newsletter. The IPA is one of Manolete’s key strategic partners. The latest three cases are re-produced here.

The Secretary of State for Business, Energy And Industrial Strategy v Geoghegan & Ors [2021] EWHC 672 (Ch) (23 March 2021)

Bell Pottinger LLP (LLP) was incorporated on 23 November 2012. It operated as a high profile British multi-national PR, reputation management and marketing company headquartered in London.

Bell Pottinger’s failure was (in part) caused by an exodus of clients due to being accused of driving a divisive social media strategy which used a network of fake bloggers, commentators, and Twitter users to influence public opinion and exacerbate racism by tarnishing the reputation of a family-owned investment company called Oakbay Investments (which had connections to former President Zuma). The accusations led to a major political controversy in South Africa.

The LLP entered liquidation on 6 September 2019 following the presentation of a compulsory winding up petition.

The case concerned an application by the Secretary of State for orders that the Respondents be disqualified from acting as directors under CDDA 1986. The case is noteworthy because the Respondents attempted to evade liability, stating they were not members of the management board of Bell Pottinger LLP and they were not involved in or responsible for the management and control of the business and affairs of Bell Pottinger LLP.

The single allegation of unfitness made against them related to their conduct on a specific account/campaign and they argued, as this was a trading activity below management board level or the equivalent board level for a company, it cannot lead to the conclusion they are unfit to be concerned in the management of a company or LLP which is the test the Court had to apply.

By substituting “member” of an LLP for “director” in the CDDA, did Parliament really intend to include junior members/partners of a large LLP (who have no involvement whatsoever in the management of the LLP) within the purview of disqualification? This has ramifications for many industries where LLP structures are the norm, such as professional services where junior partners rarely (if ever) determine issues relating to the management of the firm and are undertaking day-to-day operational roles predominantly relating to their own area of expertise.

Mr Justice Michael Green held at paragraph 79 of the judgment as follows:

1. “All members of an LLP are potentially liable to face disqualification proceedings;
2. There is no qualification to the jurisdiction over all members under s.6 CDDA that the member has to be on the management board or at a level equivalent to a director in a company;
3. The conduct that can be relied on is anything that is done in the capacity of a member of the LLP;
4. The test for unfitness is the same as in relation to companies, namely the (pejoratively) so called “jury question” – see Dillon LJ in Re Sevenoaks Stationers Ltd [1991] Ch 164, 176F – whether such conduct makes them unfit to be concerned in the management of a company or an LLP;
5. There is no line drawn in the legislation, and there is no justification for implying such a line, as to the relevant conduct that can be relied upon by the SofS”

In view of this, the Respondents’ applications to strike out and for summary judgment were dismissed. There was no distinction to be made between a junior LLP member and a senior LLP member running the firm – all are within the ambit of CDDA 1986. It was for the trial judge to review the conduct relied upon by the Secretary of State, whether it is proved and whether it renders the Respondents unfit to act.

The message for Insolvency Practitioners advising LLP members is that there is no legal distinction between different categories of members of LLPs and certainly no expectation they must serve on any management board or similar to be within the ambit of CDDA 1986 legislation, although their conduct will be reviewed and determined by a trial judge to see if it gives rise to unfitness to act.

PGH Investments Limited v Sean Ewing [2021] EWHC 533 (Ch)

This case shows the continued jurisprudence of the courts in ascertaining the impact of Covid-19 conditions on the pursuit of winding up proceedings. PGH Investments Limited (“the Company”) applied for the dismissal of the winding up petition (“the Petition”) presented against it by Sean Ewing (“the Petitioner”) on 8 September 2020. In the alternative, the Company sought an order restraining the Petitioner from advertising the Petition.

The Company disputed the debt comprised within the Petition. However the Judge summarised that if the conclusion was reached that the Company was in fact liable to pay the alleged debt, the court must go on to consider whether it is likely the court will be able to make a winding up order against the Company under s.122(1)(f) of the Insolvency Act 1986 (“the 1986 Act”), having regard to the Covid Test (Covid Test) in para.5(3) of Schedule 10 to the Corporate Insolvency and Governance Act 2020 (“the 2020 Act”).

In this instance, the court had determined the Company was not liable to pay the debt comprised within the Petition. Strictly speaking, it was not necessary to go on and consider the application of the Covid Test, however the court considered the following matters:

• The evidential burden is on the Company to establish a prima facie case that Covid-19 had a “financial effect” on the Company before the presentation of the Petition, that is to say the Company’s financial position has worsened in consequence of, or for reasons relating to, Covid-19;
• In the particular case, witness evidence had been filed which contained a number of bare and unsubstantiated assertions as to why Covid-19 had impacted the financial position of the Company;
• In the circumstances (and in particular the lack of documentary evidence), it did not appear to the court that Covid-19 had a financial effect on the Company before the presentation of the Petition and therefore the restriction on making a winding up order in para.5(3) of Schedule 10 to the 2020 Act does not apply.

The message for Insolvency Practitioners advising companies is the court will likely require witness evidence (and in particular, supporting documentary evidence) to demonstrate Covid-19 had a financial effect on the Company before the presentation of a winding up petition and therefore invoke the restriction on making a winding up order.

Security Trustee Services Ltd & Ors v Seabrook Road Ltd (Re Seabrook Road Ltd) (Rev 1) [2021] EWHC 436 (Ch) (25 January 2021)

The High Court considered whether to validate the appointments of fixed charge receivers appointed over property owned by a company. The company had issued (but not given notice of) notices of intention to appoint an administrator to the receivers’ appointor (i.e. the QFCH). The court considered the procedural defects behind the notices of intention and the apparent lack of any intention by the company to appoint an administrator.

The company had issued four notices of intention to appoint an administrator during November and December 2020. This included a period prior to, during and after the appointment of fixed charge receivers over its property. Accordingly, the company had committed clear abuses of process.

The company had made no attempt whatsoever to give the QFCH notice of the NOIs. The court determined this was a serious and inexcusable breach of the insolvency rules.

The NOIs had each stated on their face that notice was being given to the QFCH, which was simply not correct.

The court also determined the NOIs were all invalid since they had not been done with a settled intention to appoint an administrator.

The court therefore allowed the receivers’ applications to remove the notices of intention from the court file and to validate the receivers’ appointment and their subsequent steps post appointment.

The message for Insolvency Practitioners from this rather extreme example of abuse of the interim moratorium process is that the courts will simply not tolerate it.

The NOIs had been issued to obtain leverage in negotiations with the QFCH, rather than with the required settled intention to appoint an administrator. While the judgment does not show any apparent sanctions were imposed on the company (or its advisers), the cautionary tale should be that it is open to any judge to report matters of apparent professional misconduct to an IP or solicitors’ regulatory body. The use of the interim moratorium process is to be treated with all due caution, and if in any doubt, legal advice should be taken.

Andrew Cawkwell
Associate Director for the North-East

The Truth of Documents?

“But there’s no evidence of that” is a phrase often used by advocates in cross-examination or submissions. It is sometimes a point properly made but is increasingly misused to mean “there is no documentary evidence of that”, which is something quite different and which I often challenge, pointing out there is indeed evidence of that: what the witness has said in his or her witness statement. The reasons for often, but, please, not always, preferring documents over other evidence are obvious: documents more often than not are contemporaneous and more objective than human recollection, but they are not always evidentially conclusive.

The increasing tendency of courts to give primacy to documentary evidence can be traced in recent years to a case called Gestmin SGPS S.A. v Credit Suisse (UK) Limited, Credit Suisse Securities (Europe) Limited in which the judge emphasised the fallibility of and bias in memory of litigants and witnesses. This important but trite insight led him, however, to a conclusion that, in my view, was a generalisation too far:

“[T]he best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses’ recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose – though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth.”

Little if any reliance on witness recollection? I respectfully disagree, even allowing for the judge’s qualification of his own statement. But the passage has assumed a peculiar importance: it is cited all the time.

Of course, there are many cases in which the documents will be a better indication of the truth of events than recollection; but there are plenty where that simply is not so. Documents too can be manipulated and may, at the same time, be truthful yet tendentious. Two solicitors will make an attendance note of a meeting; both may accurately record what happened; yet each will give a different impression of what was said and what the tenor and the result of the discussion were. Who, drafting minutes of a meeting, has not slanted them to record them in a particular way? What about the results of consultations based on answers to loaded questions?

I was pleased, then, to read Chief ICC Judge Briggs’s judgment in the case of Lynch v Cadwallader & Anor. It was an appeal against the admission of a bank’s proof of debt based on a guarantee, the validity of which was contested by the guarantor. The judge reminded himself of Gerstmin but went on to conduct a detailed examination of the oral evidence and make reasoned findings that the oral evidence of the guarantor and witness to his signing was credible. He found that the guarantee had not been entered into as the bank claimed and allowed the appeal against the trustee’s decision.

My pleasure at the decision is not based on the result: I have no idea whether the judge’s findings of fact were right or wrong. My pleasure comes from his refusal to bow to the documents but to give proper weight to the oral evidence too. Finding facts is one of the most important functions of a judge. It is also his or her most difficult task, frequently more taxing than dealing with the law (which factual findings can often make unnecessary). It cannot and should never be approached formulaically.

Dr. Stephen Baister
Non-Executive Director