A High Court ruling refusing to set aside £4.3m judgment in default in a suppressed sales case shows the strength of the litigation funding model used by Manolete Partners, it has been argued.

Deputy Master Nurse held that the defendant, the director of a restaurant business on the Edgware Road in London, had no reasonable prospects of defending the claim.

Manolete is unusual compared to other litigation funders, most notably in that it acquires 90% of its cases from insolvency practitioners and runs them itself, as opposed to simply funding them.

In Manolete Partners v Siza, Ismael Majed Siza was a director of Palms Palace Ltd, which operated as a restaurant and Shisha bar. It was investigated in respect of suspected suppression of sales after its bank accounts recorded that no cash had been banked for a substantial period. HM Revenue & Customs (HMRC) had concerns that the ‘no sale’ and ‘void’ button on the till had been regularly used when in fact a transaction had taken place.

HMRC was also concerned about a number of negative sales, out-of-hours sales and under declared VAT due to a large number of sales being declared not subject to VAT.

HMRC ultimately assessed the company for £3.3m in tax and penalties, and considered that £4.2m which it calculated as the suppressed sales should be allocated to Mr Siza’s directors’ loan account. The company went into creditors voluntary liquidation.

With no assets in the estate, the liquidator, FRP Advisory, assigned the claim to Manolete. It issued proceedings and obtained judgment in default of an acknowledgment of service, which Mr Siza then tried to set aside.

Deputy Master Nurse refused the application, finding Mr Siza had provided no evidence to support his explanation for the use of the no sale and void buttons.

Further, the defendant’s effort to blame his accountant for the VAT classification of items on the menu was “fanciful”.

Luke Harrison, a partner at Hertfordshire firm Debenhams Ottoway, represented Manolete. He said the judgment was a useful reminder to applicants seeking to set aside judgments that the burden of doing so rested on them.

He continued: “The case also shows the effectiveness of assigning a claim to a third party such as Manolete. The assignment enabled a claim to be brought which would otherwise have been stifled due to lack of funds. The court issue fee alone was £10,000.

“Manolete financed the legal costs and disbursements whilst also providing the insolvency practitioner and the estate with a complete indemnity on Manolete’s own balance sheet at no additional cost to the estate.

“Manolete has achieved a pre-eminent place in the insolvency litigation market and in cases like this gives real fire power to creditors in tackling the wrongdoing of directors.”

A copy of the Judgment is available here.

Kindly reproduced from an article in Litigation Futures dated 5 December 2019.