Insolvency litigation funder Manolete Partners plc has seen its share price more than double in just three months of being a public company, with its chief executive telling Litigation Futures that interest in its offering has “gone bananas”.
It listed on 14 December at 175p and closed last Friday at 383.5p, having posted strong interim results shortly after joining AIM and then a very positive trading update a month ago that said its 2018/19 results were likely to be ahead of current market expectations, with operating profit growth of approximately 70%.
From 1 April 2018 to that point, 31 cases had been completed, generating gross proceeds of £9.2m.
Manolete has been in business, hitherto in a quite low-profile way, since 2009. It was founded by Steven Cooklin, a one-time accountant and banker, who told Litigation Futures in an interview that it was barristers at South Square Chambers – where his brother used to work – who alerted him to the absence of specialist funding for insolvency work.
Initially he “dabbled” in litigation funding while working in the capital markets (he is a former director of HSBC Investment Bank’s corporate finance division).
But there have been two developments in recent years that have fuelled Manolete’s growth and made it what it is today, with Mr Cooklin as chief executive.
First was the Small Business, Enterprise and Employment Act 2015. This allowed liquidators and administrators to ‘sell’ claims against directors who have acted unlawfully, or whose actions have otherwise caused significant loss to creditors, to third parties like funders.
As a result, insolvency practitioners (IPs) can both benefit from a successful claim without any outlay – the insolvent estate receives a small initial payment from Manolete and then around 50-60% of the net profit – and it removes the risk of personal liability for costs that has inhibited them from pursuing legal action in the past. The percentage reduces as the recovery level increases.
The second was the end in 2016 of the LASPO exemption that had meant success fees and after-the-event (ATE) insurance premiums were still recoverable in insolvency work. Indeed, Mr Cooklin went so far to say that, without this, Manolete would not be a public company.
He argued that the conditional fee/ATE model was difficult for IPs even when recoverability existed, because they still had to find the cash to cover disbursements and security for costs orders.
The combination of these reforms has “finally made sense of the Insolvency Act”, he continued, by giving IPs the tools to “drag money back from directors who filled their pockets in the two or three years before going insolvent”.
Some 90% of Manolete’s cases are now acquired, as opposed to funding the IP, because the company can run the case the way it wants.
This means that, unlike other funders, Manolete does not have to deal with overly invested clients demanding their day in court, nor with the restrictions on controlling litigation that commercial funders face. Just 10 of the 275 or so cases Manolete has funded to date have gone to court.
Manolete’s interests are “uniquely aligned” with those of the creditors, Mr Cooklin said, because the company only takes its share after all the costs and creditors are paid. About 14% of cases have not recovered anything for creditors, so Manolete has also received nothing.
“We always make a small payment into the estate at the start – they are never worse off,” he stressed. This can be up to £100,000 in bigger cases, while in nine cases Manolete has made a single, large one-off payment upfront in return for 100% of the recovery.
As a result, he said the model was proving popular with IPs: 60% of cases were “repeat business”. In all, Manolete has a relationship with around 100 insolvency firms, including major players like Begbies Traynor.
Listing has raised Manolete’s profile hugely. Or as Mr Cooklin put it more pithily: “It’s gone bananas.”
Last month’s trading update said that, since 1 April 2018, Manolete had invested in 55 new insolvency litigation cases, plus two new competition cases, of which 48 were purchased and seven funded.
In the whole of the previous financial year, Manolete invested in 29 insolvency litigation cases.
Manolete has invested in cases with values ranging from £20,000 to £65m. Most funders would not touch claims worth six figures, let alone five, but Manolete has no such qualms.
These are relationships worth nurturing. Mr Cooklin talks about one IP who has worked with Manolete on six small cases – “miniscule fees, great returns”, he notes – and then recently brought a £500,000 case through the door.
Manolete intends to stick to its knitting and not shift into more general commercial litigation funding – Mr Cooklin said that at most it would “move in a small way into tangential areas”.
And despite the model allowing Manolete to control the case, it would not be setting up a panel of law firms, let alone building its own, he said. He did not want to disrupt the “long and deep relationships” that referring IPs have “with law firms they trust”.
Indeed, such a move could put Manolete out of business pretty quickly.
And the best thing for the lawyers? Manolete does not require conditional fee agreements, does not use ATE, and it pays them as the case progresses.