Leading law firm funding business VFS Legal has gone into administration, with its founder telling Legal Futures that a change in its wholesale funder was the cause.
Norman Kenvyn said VFS had provided over £250m to the legal market over 12 years, covering tens of thousands of cases.
Sarah Collins and Mark Firmin of Alvarez & Marsal confirmed that they have been appointed as the company’s joint administrators, as well as of Virtual Business Operation Services Ltd, the services company that supports VFS.
VFS provided both disbursement funding and costs advance funding – releasing work in progress once a bill has been served – and has 17 members of staff at its office in Bromley, Kent. But it was unable to secure long-term financing.
The company’s future is unclear as the administrators explore options for the business, including finding a buyer as well as collecting the current book debt.
VFS is unable to provide any further funding at the moment and is in contact with those it has provided funding to about their repayment agreements.
Mr Kenvyn said he could not comment in detail, but “it would be fair to say that pressure from our wholesale provider overtook us and the new funder was too slow so we just couldn’t get them aligned in time.
“It’s extremely disappointing for a profitable SME with a reputation for introducing innovative funding solutions to the legal sector to help our clients, the law firms; for them to deliver access to justice to their clients, the consumer.”
He praised the team built over 12 years, with its “proven deliverability” as VFS looked “to take funding to the next level”.
Mr Kenvyn added: “It’s truly a sad day, not just for us and our staff, but for the law firms we have already served and those that were yet to come and I would like to thank our staff and clients for their support and working with us over the past few years.”
VFS’s most recently filed accounts, for the year to 30 June 2022, put its trade debtors at nearly £50m and creditors at almost £39m, mostly a bank loan of £35.6m.
The accounts said this required “significant monthly payments until the loan is repaid in full in September 2024”.
They continued: “This loan is not sufficient to finance the activities of the company until September 2024 and will severely impact the cash flow of the company. The company has not yet been able to secure additional financing.
“This indicates the existence of a material uncertainty which may cast significant doubt on the company’s ability to continue as a going concern.”
Steve Din, the head of Doorway Capital – another law firm finance provider that owns national practice Simpson Millar – said: “Whilst the administrators may have simply sought proposals for firms to repay what is owing to VFS Legal, I don’t believe many sensible proposals will be forthcoming, leaving the administrators with little choice to try and sell the existing loan book or formally demand repayment.”
“Once any repayment demands have been mailed to these firms, a number may become insolvent as a result.”
Mr Din claimed that a number of VFS clients contacted Doorway Capital over the weekend about refinancing their borrowings. “We are doing everything we can to assist them.”
He questioned the impact of VFS’s collapse would have on Slater & Gordon in particular but in a statement, the firm said: “Slater & Gordon has not drawn on funding from VFS for some time – their administration has not come as a surprise to us, and we have planned accordingly.
“As a result, this is not anticipated to have any impact on our day-to-day business.”
In its most recently filed accounts, for 2021 – but written in January 2023 – Slater & Gordon said its unnamed provider of working capital had informed the firm that it was “attempting to refinance its own business given repayment commitments under its own facilities”.
It continued: “If these refinancing activities are not successful, the current provider has indicated that it will not be able to continue funding the group’s working capital facility. In these circumstances, the group will need to find alternative working capital financing.”
The report said the directors’ assessment of going concern assumed the group would have access to at least £25m of working capital funding, on terms substantially similar to those of its then funder.
This story was updated on 26 July after confirmation was received from the joint administrators.