A listed litigation funder says a new stream of Covid loan claims could be a major source of future income after a half-year in which seven-figure losses were posted.
Insolvency specialist Manolete Partners reported to the London Stock Exchange today that it lost £2.2m in the six months to the end of September, compared with a £3.2m profit in the same period last year. Shareholders will receive no dividend based on the half-year performance.
As had been trailed previously, the losses were a result of unrealised proceeds from a VAT fraud judgment on one of the larger cases funded by Manolete. Permission has been granted to challenge the decision in the Court of Appeal.
Aside from that setback, the company was keen in its half-year results to push various positive metrics which show the insolvency market is rapidly coming back to life from a period of being ‘artificially supressed’ by government action to limit the number of companies going out of business during the Covid-19 pandemic.
Ironically, one of the measures taken then could prove to be a lucrative new source of work in future, the company said.
Manolete revealed in its financial results that it had started a pilot with Barclays Bank to recover misappropriated loans under the government’s bounce back loan scheme. Then-chancellor Rishi Sunak oversaw loans worth an estimated £50bn to help businesses through lockdown and some owners misused the money for personal means.
The pilot scheme included 102 cases from which Manolete receives a fixed fee and splits the recoveries with the bank or lender.
Chief executive Steven Cooklin said: ‘Early results are impressive, and we are engaging with the other main BBL lenders.
‘While there can be no guarantee of further cases from these sources, we believe that the recovery data from the pilot will be instructive as to how the banks and the UK government can maximise recoveries from the minority of companies that abused the various Covid financial support schemes.’
Manolete said realised revenues from completed cases grew 77% to £13.6m from 95 completed cases. On average, the company was completing almost four cases every week of this six-month interim trading period.
New case enquiries for the six months increased by 34% over the comparable period for the previous year as the UK insolvency regime started to return to normal operations.
But the substantial losses resulting from one adverse judgment have prompted a ‘more cautious approach’ on the portfolio of live cases after what Cooklin described as a ‘diligent review’ of ongoing work.
Asked whether the results showed the company was too reliant on individual cases, Cooklin told the Gazette: ‘One really needs to take a step back. Our portfolio at the year end was valued at £35-40m. The impact of this case was £2.3m and in early April we settled a case for £9.5m and received [the profit] in 21 days. The bigger a portfolio gets the lower the impact of any single case, and other funders have rather more of their eggs in one basket.’
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