UK Court says no cap on award to an 'innocent' assignee of claims

The High Court has overturned a decision that an award for certain claims against directors should be limited to the amount required to satisfy the company's liquidation debts, costs and expenses.

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 for the sale of their shares in the Company and the distribution of dividends. Due to a lack of funds in the estate, the liquidator assigned the claims to Manolete Partners Plc ("Manolete").

The terms of the assignment were such that a percentage of the proceeds from the claims would be shared with the Company.

Decision

Manolete was successful in bringing the claims. In the initial proceedings, a cap was imposed on the award so that funds flowing back to the Company in liquidation did not exceed the amount required to satisfy the Company's liquidation debts, costs and expenses.

Due to the terms of the assignment, the cap would have left Manolete out of pocket. Manolete appealed the decision.

On appeal, the High Court held that the cap should not be imposed because:

• the cap would be difficult to apply in practice because of the uncertainty of the future amounts required to satisfy the liquidation debts
• the identity of a claimant as an assignee is a factor relevant to the award amount
• the purpose of the court's discretion to cap any award is to prevent third parties from benefiting from their wrongdoing. Manolete had not committed any wrongdoing.

Key takeaway

This decision is good news for litigation funders and other third-party assignees that adopt a shared recoveries model with assignor(s).

Find out more 

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