Manolete Partners & Insolvency Litigation Finance

Former Investment Manager, Augusta Ventures LLP

Why is this interview interesting?

  • Fundamentals of insolvency litigation
  • Why Manolete's returns are so good
  • Questions to ask Manolete management
  • How to recover assets and Burford's collection strategy
  • Outlook for litigation management

Executive Bio

Former Investment Manager

Former Investment Manager, Augusta Ventures LLP

The executive is a Former Senior Investment Manager at Augusta Ventures, a leading litigation financing company. The exec has experience in investing in solvency litigation cases as well as broader litigation single and portfolio of cases and is now a practicing lawyer in Australia.Read more

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Interview Transcript

As I see it in litigation finance, are that you're working directly with a law firm or you're working with a corporate through a law firm. With insolvency, you obviously have IPs in the mix. Understanding what it’s like to work with IPs when they may be bringing you a claim, getting a signed claim versus funding a law firm at the choice of the IP and how they might think about those things, all that stuff.

When I did insolvency funding, the first big issue was recovery, which was making sure that there were assets that could be recovered against the targets. Often, it would be a claim against the directors for insolvent trading and recovering their assets. There needed to be in-depth analysis about whether, firstly, the director has assets or if he's hidden them in some other way; doing some investigation and being satisfied on that. Another issue that crops up for the IP is that they want to make some money as the litigation is running, so as a sweetener, they usually like to be paid something from the funder as the case is running. That way, they're able to build some income for the time they spend running the litigation because they're the ones providing the instructions. They’re stepping in the shoes of the company.

I think the good thing about insolvency is that if there has been a breach of the corporation's act or the company's law or company's act in the UK, it's a relatively straightforward process in terms of recovery and proving your case. It's not as difficult as a breach of contract claim or something like that; it's a bit more straightforward because it's legislated. It's more a simple stream of types of cases. Sometimes you get some complex litigation when you have multiple company structures where you're trying to pursue numerous different companies and trace where the money went. When a group of companies goes bust, it becomes more complex and expensive to run that type of litigation.

The other thing that is important to consider is the economics of each case. Yes, there is potentially a claim for, say, £2 million against this director, but what will it cost to recover that amount from this director. Then you work out the money left over and what we can realistically charge for this case. Depending on the economics, you can charge anywhere between one and three.

That seems like a really big range. If you look at Manolete, and they show their vintage tables, again, it's a bit of a different model, but they show something like 3X multiple on an 11-month duration. Part of it is they would say, well, 95% of claims settle, and this is fundamentally not a deployment model. I’m curious if you would expect multiples to be higher if you settle quickly?

It depends on how you structure the deal. We used to do staging with our cases at Augusta where you would try to 1X if we received the funds back within the first 12 months and 2X the second year, and then 3X if it took more than two years, because the risk and cost go up the longer a case goes on. So 3X in 11 months is probably unusual.

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