The High Court dismissed Manolete Partners Plc’s claim against former One Legal Services CEO Trevor Howarth for alleged preferential payments totalling £101,000, finding that the director acted in good faith and responsibly when repaying his loan account during the firm’s CVA and subsequent administration. Judge Barber held there was no breach under sections 238 or 239 of the Insolvency Act 1986.

This recent judgment (Manolete Partners Plc v Trevor Howarth EWHC 2294 (Ch)) is a vital reference point for directors involved in insolvency litigation, especially where claims relate to director loan repayments and alleged “salary swap” arrangements. Judge Barber clarified the evidential burden facing litigation funders like Manolete seeking recovery of preference payments, and reinforced the principles that govern creditor priority under UK insolvency law. The outcome demonstrates how assignee claims may falter when directors meticulously document advice and decision-making. Practitioners should note how arguments under the Insolvency Act 1986 are tested by factual matrices and contemporary documents, echoing findings seen in other Manolete cases and director claim guides on preference transactions. For directors facing similar proceedings, timely expert advice from UK insolvency solicitors, can be the difference between success and substantial financial risk.

Case Background

One Legal Services, led by Trevor Howarth and co-director Jason Lartey, operated a centralised legal service model primarily in criminal legal aid. Following the troubled acquisition of Kaim Todner Solicitors, One Legal was forced into a Company Voluntary Arrangement (CVA) to avoid winding-up after severe cashflow stress and mounting HMRC debts. At entry, Howarth’s director’s loan stood at £97,445 plus interest. On the advice of insolvency supervisor Robert Adamson, Howarth swapped monthly salary payments for director loan repayments to reduce PAYE and NIC obligations, aiming to salvage the firm’s solvency and operational capacity. After Adamson’s untimely death, administrator Mike Kienlen assigned recovery claims against Howarth to Manolete Partners Plc, a leading UK insolvency litigation funder, forming the basis for the present claim.

Please find the full judgment below:

Key Findings in Manolete Partners v Howarth

Documentary Evidence and Good Faith

Judge Barber (at para 204) found: “On the evidence which I have heard and read, I am satisfied that the Company, acting by the Respondent, made all the Payments in good faith, for the purpose of carrying on its business and with reasonable grounds at the time for believing that the transactions would benefit the Company.” Detailed file notes, invoices, and contemporaneous communications supported the defence, and judicial scrutiny exposed significant gaps in Manolete’s evidential presentation.

Judicial Critique of Claimant’s Investigation

At para 177, the Judge held: “Mr Kienlen (and through him the Applicant) could have disclosed a full set of…meeting notes…in Armstrong Watson’s possession or control but declined to do so, notwithstanding the heightened importance…in light of Mr Adamson’s unfortunate sudden death. Such documentation is in my judgment ‘conspicuous by its absence’.”

No Preference or Undervalue Found

Concluding at para 212: “In relation to the preference claim, the Applicant has failed to establish a preference in fact; and even if I am wrong, … the presumption of desire to prefer has been rebutted… In relation to the transaction at an undervalue claim, the Applicant has failed to establish a transaction at an undervalue…even if the Applicant had been able to establish a small undervalue, the s.238 claim would still fail by virtue of s.238(5).” Judge Barber accepted the defence’s evidence that repayments mirrored net salary and were lower, thus conferring no personal enrichment.

Director’s Duties Judiciously Applied

Notably, para 214 stated: “The Respondent has at all material times acted responsibly and with integrity as a director… He reasonably relied on Mr Adamson’s advice…motivated only by a wish to save the Company the PAYE and NIC that would otherwise have been payable on his salary.” The judgment is built on neutrality and the UK court tradition of weighing both intention and factual benefit.

Implications of Manolete v Howarth

This case is a affirmation of documentary primacy and the limits of technical claims pursued by assignees under the Insolvency Act 1986. The judgement amplifies trends in UK insolvency litigation, notably that courts will look beyond superficial breaches to the substantive commercial realities faced by directors. Directors relying on specialist advice, especially where incentives align with creditor interests, stand on solid ground, provided they can account for all decisions with contemporaneous records. Recent Manolete cases demonstrate courts’ reluctance to penalise directors for honest errors or financial management that demonstrably prioritises creditor recovery.

For insolvency funders (such as Manolete), the decision underscores the importance of rigorous fact-gathering and highlights the risk of adverse findings and cost exposure should claims lack robust evidential support. The trend of courts scrutinising assignments, as in winding-up petitions and professional negligence disputes, should inform settlement posture and disclosure strategies for both sides. Practitioners and directors alike should remain alert to shifting standards in the assessment of director’s loan transactions, especially when advice from insolvency professionals interplays with CVA outcomes. Analysis from LexLaw’s practice area guides such as those on defending directors claims and director’s loan liabilities, illuminate how tactical defence and negotiation can alter outcomes.

Table: Comparative Outcomes — Recent Manolete-Funded Director Claims

Defending Manolete Director Claims

To defend against Manolete-funded proceedings, directors must undertake forensic accounting and obtain expert opinions to counter undervalue or preference allegations Gathering all contemporaneous instructions, board minutes and transaction records is paramount  as courts emphasise these over retrospective explanations. Engaging independent UK insolvency solicitors at the earliest stage can uncover procedural or evidential inconsistencies in funder claims, while also leveraging ADR or mediation for tactical advantage. In disputed director’s loan scenarios, forensic review of payment characterisation (loans vs salary/dividends) and tax treatment will be critical; authoritative expert analysis is often needed to refute claims based on reconstructed accounts or missing documentation. Experienced advisers can challenge cost escalation and inappropriate inferences drawn from incomplete disclosure, securing optimal case outcomes or settlements for directors and shareholders. For more guidance see Legal Guide to Defending Claims from Manolete Partners.