Manolete Partners Plc v Trevor Howarth: An Insolvency Case Study (2025) EWHC 2294 (Ch)

This insolvency case study begins with a company called One Legal Services Ltd (trading as One Legal) and one of its directors, Trevor Howarth. At stake were payments made from the company to Mr. Howarth during a crucial financial restructuring period, leading to a court battle over whether those payments should be repaid.

The Company and the Financial Struggle

One Legal, incorporated in 2012, provided legal services primarily criminal legal aid. Trevor Howarth was its CEO and director, a seasoned legal professional and sole shareholder from early 2019. The Company faced serious financial trouble after acquiring another practice in 2016, uncovering over £600,000 in undisclosed liabilities.

Mr. Howarth had loaned the company £75,000 with 8% interest to help with cash flow. In 2017, a wealthy investor, Andrew Tinkler, invested nearly £3 million indirectly into One Legal via Mr. Howarth, who had regulatory approval to receive such investment.

Despite this, the company’s financial position worsened, leading to growing debts, especially Crown debts including unpaid PAYE and National Insurance Contributions (NIC) totaling over £830,000.

The Company Voluntary Arrangement (CVA) and the Payments

In early 2019, One Legal proposed a Company Voluntary Arrangement (CVA) to restructure its debts while continuing to trade. Mr. Howarth and another director, Jason Lartey, signed the CVA proposal, which excluded certain creditors, including Mr. Howarth’s director’s loan, from the arrangement so as not to impair them.

The firm Armstrong Watson LLP (AW), with lead insolvency practitioner Robert Adamson, was instructed to supervise the CVA.

A key financial maneuver advised by Mr. Adamson was that Mr. Howarth would stop receiving his usual salary of £200,000 per year (approximately £16,666 gross per month) directly, coming off the PAYE payroll from April 2019. Instead, he would receive monthly payments to reduce his director’s loan account roughly equivalent to his net salary (around £10,000 per month), thereby saving the company significant sums in PAYE and NIC liabilities.

Between April and December 2019, the company made 8 payments totalling £101,000 to Mr. Howarth under this “salary/loan swap” arrangement. Meanwhile, other staff and Mr. Lartey remained on payroll and continued receiving their salaries.

Unfortunately, the CVA terminated in December 2019 after the company failed to meet its monthly contributions. The company entered administration shortly thereafter.

The Dispute and Court Proceedings

Manolete Partners Plc, the Applicant, sought to recover the payments made to Mr. Howarth during the CVA under sections 238 and 239 of the Insolvency Act 1986. They claimed:

The payments were preferential payments, improperly favouring Mr. Howarth as a connected person (a director),
Part of the payments were transactions at an undervalue.

Mr. Howarth contested the claims, maintaining:

The payments reflected legitimate repayments of his director’s loan plus contractual interest,
The payments were made on the advice of Mr. Adamson to save the company money on taxes,
That the arrangement was transparent and known to the supervisors,
The repayments were not preferential as he was not better off than if he continued receiving salary, indeed he was slightly worse off.

Key Evidence and Findings

Extensive evidence was considered, including witness statements from Mr. Howarth, Mr. Botting (the company’s CFO), and Mr. Kienlen (successor administrator after Mr. Adamson). The court found:

Mr. Adamson had advised the salary-to-loan repayment swap both before and just after the CVA started.
Mr. Howarth followed that advice, stopping salary payments and receiving loan repayments instead.
The payments saved the company approximately £55,000-£56,000 in PAYE and NIC costs.
The company’s accounts and schedules confirmed Mr. Howarth’s director’s loan balance was around £97,445 plus 8% interest, not the lower figure the applicant claimed.
The Applicant failed to produce supporting documents to prove inconsistencies or undervaluation.
There was no evidence Mr. Adamson or supervisors had challenged the arrangement during the CVA or administration until after Mr. Adamson’s death.
Mr. Howarth was not better off and had no improper desire to prefer himself over other creditors.

Court’s Decision

The court dismissed the Applicant’s claims. It held:

The payments were not preferences under section 239 as Mr. Howarth was not put in a better position than if he received salary.
The payments were not transactions at undervalue under section 238 because they were made in good faith and intended to benefit the company.
The salary/loan swap arrangement was a commercially sensible and transparent decision advised by the CVA supervisor.
Mr. Howarth acted responsibly and with integrity as director throughout.
The court expressed regret at the stress caused to Mr. Howarth by protracted proceedings.

The court dismissed Manolete Partners Plc’s application for repayment of £101,000 from Mr. Howarth, concluding he acted in good faith, under expert advice, and that the payments were not unlawful preferences or transactions at an undervalue.

For more information, read the full case on Manolete Partners Plc v Howarth