The High Court’s judgment in Manolete Partners Plc v Sampson Coward LLP] [2023] EWHC 37 (Ch) reinforces the rigorous duties owed by professional escrow agents in insolvency contexts and the court’s cautious approach to summary disposal in complex breach of undertaking claims.
The decision, pursued by litigation funder Manolete Partners, illustrates the challenges in establishing beneficial ownership of escrow funds and the necessity of full factual investigation where multi-faceted breaches are alleged. It also emphasises the importance of directors’ duties claims and insolvency litigation strategies under the Insolvency Act 1986 and Companies Act 2006. For those facing similar claims, early engagement with specialist directors’ duties solicitors and insolvency experts is vital to navigate the procedural and substantive complexities involved.
We are the leading UK firm defending directors against Manolete Partners’ claims due to our expertise in insolvency litigation and strategic defence tactics. Our dual-qualified and experienced solicitors & barristers, based near London’s Royal Courts of Justice, specialise in countering Manolete’s aggressive pursuit of transactions-at-undervalue claims e.g. by challenging evidence validity, leveraging limitation periods, and demonstrating good faith per the Insolvency Act 1986. We have a track record of protecting directors’ assets, including family homes, while navigating complex financial and regulatory risks. Our insolvency law focus and experience with litigation funders ensures tailored, robust defence in high-stakes claims. Get in touch about your Director’s Duties case.
Manolete Partners Plc v Sampson Coward LLP
UK Property and Land Specialists Ltd (UKPALS) and Nero Developments Ltd were placed into compulsory liquidation on 3 December 2021 following the collapse of property development ventures funded by connected lenders. Sampson Coward LLP acted as solicitor and escrow agent under loan agreements executed in 2013 and 2015, responsible for holding lender funds in client escrow accounts subject to strict undertakings.
Manolete Partners acquired assigned claims from the liquidators of UKPALS and Nero Developments, alleging that Sampson Coward breached its fiduciary duties by permitting director Nigel Jeremy Weir to use the client account as a banking facility. The claimants assert that approximately £2 million was released without proper authorisation, contrary to the terms of the escrow agreements and the lenders’ instructions. Additionally, Manolete alleges that the firm improperly facilitated three back-to-back property sales by UKPALS, transactions that lacked commercial purpose and diverted value away from the insolvent estate.
The defendant law firm sought summary judgment under CPR 24.2, contending that the funds in escrow remained beneficially owned by the lenders, thereby negating the claimant’s standing. They also argued that the breach of undertaking claims involved complex factual issues unsuitable for summary determination.
Download The PDF Judgment here:
Key Findings in Manolete Partners Plc v Sampson Coward LLP
Rejection of Beneficial Ownership Defence
Deputy Master Teverson rejected the defendant’s argument that the lenders retained beneficial ownership of the escrow funds, holding that the contractual provisions relating to escrow accounts were ambiguous and complicated by the operation of a single escrow account under the Nero Loan Agreement.
This aligns with established insolvency principles that escrow arrangements cannot override the rights of insolvency practitioners and assignees to trace misapplied assets.
Breach of Undertaking Claims Unsuitable for Summary Disposal
The court emphasised that the allegations of unauthorised withdrawals through 37 separate client ledger entries presented a “multi-factorial factual matrix” unsuited to summary judgment.
Forensic accounting and detailed factual inquiry were necessary to determine whether payments were authorised or constituted breaches of fiduciary duties under the SRA Accounts Rules 2019.
Implications of Manolete Partners Plc v Sampson Coward LLP
This judgment confirms the judiciary’s reluctance to dispose of complex fiduciary and breach of undertaking claims on summary judgment when significant factual disputes exist. It underscores the importance of escrow agents maintaining strict compliance with their undertakings, especially in insolvency scenarios where creditor interests are paramount.
The decision also demonstrates that assignees like Manolete Partners have standing to pursue claims notwithstanding arguments about beneficial ownership by lenders. This supports the viability of litigation funding models in insolvency claims, ensuring that valuable claims are not prematurely dismissed on procedural grounds.
For directors and professional advisers, the ruling highlights the risks of inadequate oversight of client accounts and the potentially severe consequences of breaching fiduciary duties. It also signals that courts will look beyond contractual formalities to the substance of transactions and conduct.
For more detailed guidance on defending such claims, see our legal guide to defending Manolete claims.
Defending Manolete Claims
Defending against claims assigned by Manolete requires a detailed review of escrow agreements, client account records, and instructions. Legal strategies should focus on challenging beneficial ownership assertions, demonstrating compliance with undertakings, and scrutinising the authorisation and purpose of payments. Forensic accounting evidence is often critical to establish whether payments were legitimate business expenses or unauthorised withdrawals.
Limitation arguments and procedural defences under the Civil Procedure Rules may be available but are unlikely to succeed where the factual matrix is complex and contested. Early engagement with specialist insolvency solicitors experienced in Manolete claims is essential to develop robust defences and manage litigation risk effectively.
Expert Legal Representation against Claims Brought By Manolete Partners
Our expert team is highly experienced in defending claims brought by litigation funders such as Manolete Partners. With a deep understanding of the complex nature of litigation funding, we offer strategic, robust legal support to protect your interests. Our solicitors have a proven track record of successfully challenging claims in insolvency and other contentious matters, providing you with tailored solutions to navigate the pressures and complexities of litigation. Whether you are facing legal action from Manolete or another litigation funder, we will work closely with you to develop a strong defence and achieve the best possible outcome for your case.
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FAQ’s on Directors’ Duties and Manolete Claims:
Why is this case significant for insolvency law?
It clarifies that courts will not grant summary judgment in complex breach of undertaking claims involving escrow mismanagement and affirms the rights of assignees to pursue such claims despite beneficial ownership arguments.
What constitutes a breach of undertaking by an escrow agent?
Failure to comply with escrow terms, permitting unauthorised withdrawals, or misapplying funds contrary to lender instructions and professional rules constitutes a breach.
How does Manolete’s litigation funding model affect claimants and defendants?
Manolete’s funding enables the pursuit of claims that might otherwise be unaffordable, increasing pressure on defendants to settle or defend claims thoroughly.
What defences are available to directors and firms in similar cases?
Defences include proving compliance with undertakings, challenging standing or assignment validity, demonstrating payments were authorised business expenses, and limitation arguments.
Can shareholders ratify breaches during insolvency?
Generally, no. Once insolvency is imminent or declared, directors’ duties shift to creditors, and shareholder ratification is ineffective.
If my company is dissolved, can Manolete still pursue me personally?
Yes. Manolete may pursue directors personally for historic breaches under statutory provisions like wrongful trading or misfeasance.
Does Manolete’s funding model give them unfair leverage?
While it provides resources, courts maintain procedural safeguards to ensure fairness and do not grant claims without proper evidence.