UK Court Removes Cap on Award to ‘Innocent’ Assignee of Claims

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The High Court has reversed a prior decision that capped awards for certain claims against directors to the amount required to satisfy the company’s liquidation debts, costs, and expenses.

Case: Re P G D Ltd (in liquidation), Manolete Partners plc v Hope and another [2022] EWHC 1801 (Ch)

Background P G D Limited (the “Company”) and its liquidator had various claims against the directors related to the sale of shares in the Company and the distribution of dividends. Due to insufficient funds in the estate, the liquidator assigned the claims to Manolete Partners Plc (“Manolete”).

Under the assignment terms, a percentage of the proceeds from the claims would be shared with the Company.

Decision Manolete was successful in pursuing the claims. Initially, a cap was imposed on the award to ensure that funds flowing back to the Company in liquidation did not exceed the amount required to cover the Company’s liquidation debts, costs, and expenses.

This cap would have resulted in a financial loss for Manolete due to the assignment terms. Manolete appealed the decision.

Upon appeal, the High Court ruled that the cap should not be imposed because:

• The cap would be difficult to apply in practice due to the uncertainty of future amounts needed to satisfy the liquidation debts.
• The identity of a claimant as an assignee is a relevant factor in determining the award amount.
• The purpose of the court’s discretion to cap any award is to prevent third parties from benefiting from wrongdoing. Manolete had committed no wrongdoing.

Key Takeaway This decision is favourable for litigation funders and other third-party assignees using a shared recoveries model with assignors.

Find Out More To discuss the issues raised in this article in more detail, please contact a member of our Restructuring & Insolvency team.