Philip Henderson
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September 23, 2022

“Lock-ed” Out: Court of Appeal demonstrates its reluctance to set aside assignments

In insolvencies, assignment of claims is an increasingly popular way for office holders to realise value from legal claims. The claims are transferred to a third party (typically a litigation funder) who steps into the shoes of the company and runs the litigation in its own name using its own resources. This minimises the risk and expenses incurred by the company and its office holders, but allows them to realise a price and/or a share in the upside if the claim is successful.


Some defendants have tried to capitalise on the fact they are also (or claim to be) creditors of the company to mount opportunistic challenges to the assignment, and thereby defeat the claim.

Section 168(5) of the Insolvency Act 1986 provides that “if any person is aggrieved by an act or decision of the liquidator, that person may apply to the court; and the court may confirm, reverse or modify the act or decision complained of, and make such order in the case as it thinks just.

In Re Edengate, Mrs Lock, a creditor and former director of Edengate Homes (Butley Hall) Ltd (In Liquidation), applied to set aside a decision made by the company’s liquidator to assign claims against her and her family to a third party litigation funder. Mrs Lock argued that the liquidator’s decision had deprived her and her family of the opportunity to purchase the claim and thereby bring it to an end.

The High Court had concluded that Mrs Lock did not have standing to bring the application. It also held that, even if she did have standing, the liquidator’s decision had not been perverse i.e. utterly unreasonable. Mrs Lock appealed on both issues.

Legal analysis

In relation to standing, the Court of Appeal agreed with the High Court. It is not sufficient to show that a “person is aggrieved” simply by virtue of being a creditor. A person must also show that they have a legitimate interestin the relief sought. In the context of assignment, “an applicant will have a legitimate interest if it is acting in the interests of creditors generally”. On the facts, the Court of Appeal held that Mrs Lock’s real interests were as a defendant in the litigation, and this was not aligned with the creditor class generally and as a whole. Accordingly, Mrs Lock did not have standing to bring the application.

The Court of Appeal went on to consider perversity as a distinct legal principle, saying that the correct test for perversity (excluding instances of fraud and bad faith) was best summarised in Re Edennote: “the court will only interfere with the act of a liquidator if he has done something so utterly unreasonable and absurd that no reasonable man would have done it”.

Therefore, whilst it may be good practice to give a defendant the opportunity to acquire (i.e. settle) a claim before assigning it to a litigation funder, there is no obligation on the liquidator to do so. Even if the reasons given for a liquidator’s decision to assign a claim are unsatisfactory, this alone is not enough to automatically meet the perversity threshold.

Finally, it is clear that the court will not exercise its discretion under section 168(5) if doing so is not in the best interests of a company’s creditors.


An office holder is appointed to realise value for company assets. Claims requiring litigation are often difficult assets to deal with, but there is a growing and active market of companies willing to purchase these claims. This case is a further example of the Court encouraging and facilitating this market, thereby increasing options for insolvency practitioners. In fact, office holders are more likely to find themselves being criticised (and potentially in breach of their duties) if they do not take steps to obtain value for claims, even if there are no funds in the estate. In the case of LF2 v Supperstone [2018] EWHC 1776 (Ch), the court made it clear that if an office holder “has no funds to investigate a possible claim against a third party and he receives an offer from a potential assignee of the claim to pay for an assignment, that offer will potentially constitute an asset of the company: as such, it should be realised".

In Re Edengate, the liquidator was able to overcome the challenge to the assignment by demonstrating that he had taken reasonable steps to realise the value of the litigation. For example, he had investigated funding possibilities with an alternative creditor and looked at entering into a conditional fee arrangement combined with ATE insurance, before assigning the claim to a litigation funder. There was nothing on the facts to show that he would have been able to obtain an equal or better offer for the assignment from Mrs Lock.

In practice, defendants will be unable to show that better value could have been achieved unless they are willing to settle the claim with the assignee - which is what they are trying to avoid! This case is a good reminder that, when assigning claims, office holders should bear in mind the same good practice as when realising any asset - they should consider the various options available to them and, of those, which is likely to result in the best outcome for the company’s creditors.

This article was first published in TL4 FIRE Magazine Issue 10 on 23 September 2022.

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