Manolete Case Study: Director Ordered to Repay Preferential Payment (s.239 Insolvency Act 1986)

This judgment (Manolete Partners Plc v Coleman & Ors [2022] EWHC 2644 (Ch)) demonstrates how the courts examine directors’ decisions when companies face insolvency. Funded by leading insolvency litigation backer Manolete Partners Plc, the claim centred on preferential payments to directors and connected parties. The outcome underscores the risks directors face when making payments during periods of financial distress, while also showing that statutory presumptions can be defeated with credible and consistent evidence. For those defending directors’ duties claims, transactions at undervalue, or winding-up petitions, the case provides a valuable illustration of the High Court’s approach under the Insolvency Act 1986 and the need to engage expert lawyers.

Case Background

David Coleman & Co Limited was a small accountancy firm incorporated in 2011, run by directors David Coleman and Simon Thacker. For several years the firm generated modest profits, sufficient to pay small dividends, but by 2018 it encountered serious financial problems. Its primary issue was the mounting VAT liability to HMRC, which led to a Controlled Goods Agreement in September 2018 and a time-to-pay arrangement. The company failed to comply, and by February 2019, HMRC threatened re-entry unless £25,461 was paid.

Although partial repayment was made, arrears persisted, and by October 2019 a petitioning creditor (LDF) sought winding-up for unpaid debts. The company was compulsorily wound up in December 2019. The liquidator then assigned potential claims under s.239 Insolvency Act 1986 to Manolete Partners Plc, which pursues insolvency claims as a litigation funder.

The challenged transactions were:

Date	Transaction	Beneficiary	Amount	Court Finding
1 April 2019	Debit to extinguish director’s loan	Simon Thacker	£33,542.20	Preference – repayable
25 July 2019	Payment from sale proceeds	David Coleman	£15,000	Not a preference (defence succeeded)
26 July 2019	Repayment to FCTL (loan guaranteed by Coleman & Thacker)	Funding Circle Trustee Ltd	£37,746.25	Not a preference (claim dismissed)

This table shows the mixed outcome: Thacker was held liable, Coleman avoided liability, and the claim against FCTL was settled on terms following a settlement and the judge’s findings.

View the PDF Judgment below:

Key Findings in Manolete v Coleman & Ors

Thacker’s Preference Liability

The Court held that Thacker’s April 2019 transaction extinguishing £33,542.20 of his loan was a preference. ICC Judge Jones stated:

“Mr Thacker was a director, a connected person. The debit occurred within two years of the commencement of the winding up. There is a presumption of insolvency which he has not rebutted… There is no evidence before the court to rebut that presumption. I find, therefore, that he received a preference… £33,542.20.” (para. 67)

Because Thacker offered no evidence, he could not rebut the statutory presumption of insolvency or desire. The Court ordered him to repay the full sum.

Coleman’s Defence Succeeds

Coleman had authorised the July 2019 payments of £15,000 to himself and £37,746.25 to FCTL. He argued he acted in the belief that the company was not insolvent long-term and that all creditors would eventually be paid from future instalments of the business sale. The judge accepted his evidence:

“I accept his evidence that he was not even contemplating the possibility of an insolvent liquidation at the time of the two payments on 25 and 26 July 2019… The Company had a desire to confer a benefit on him… but not to improve his position in an insolvent liquidation.” (para. 62)

Thus, Coleman successfully rebutted the presumption of “desire to prefer” under s.239 (5).

Implications of Manolete v Coleman

The decision illustrates several key points of insolvency law:

1. Statutory presumptions are powerful, but rebuttable. For connected persons, courts presume both insolvency and a desire to prefer. Thacker’s silence sealed his liability, while Coleman’s credible testimony enabled him to rebut.
2. Subjective intention matters. The court emphasised that the “desire to prefer” test is subjective. Coleman convinced the judge that he expected creditors to be repaid eventually, so his motive was not to improve his own standing in liquidation.
3. Credibility is critical. Coleman succeeded largely because his oral and written statements were consistent, including with evidence he had given to the Official Receiver earlier. This highlights how directors’ credibility can make or break a defence.
4. Documentation remains essential. The lack of formal records undermined Coleman’s case, but did not prove fatal. For directors in future cases, maintaining thorough records can prevent reliance solely on oral evidence.
5. Manolete’s role is increasingly prominent. By taking assignment of claims, Manolete ensures directors face scrutiny even when liquidators lack resources. Directors should anticipate aggressive pursuit of preference and undervalue claims by funded litigants.

Defending Manolete Director Claims

This case underscores the importance of proactive defence strategies and engaging expert lawyers. Directors facing claims should:

• Undertake forensic accounting. Insolvency dates and transaction values must be precisely assessed. Expert solicitors and evidence can sometimes disprove insolvency at the relevant time.
• Demonstrate consistent intent. Courts will weigh whether directors genuinely believed creditors would be repaid. Documenting this belief through contemporaneous board minutes or correspondence strengthens credibility.
• Challenge presumptions. As Coleman’s case shows, it is possible to rebut the presumption of “desire to prefer.” Skilled cross-examination and consistent witness statements are vital.
• Engage specialist solicitors early. Defending Manolete claims requires tailored strategies, whether to contest liability or negotiate favourable settlements. Engaging specialist solicitors is necessary.
• Plan for litigation funding dynamics. Manolete’s financial backing often makes cases harder to “wait out.” Defence teams must adapt their tactics accordingly, sometimes using settlement windows strategically.

At LEXLAW, we have successfully defended directors against wrongful trading and preference claims. Early advice is often decisive, preventing claims from escalating into judgments. Contact now for legal advice!