A number of adverse costs awards against Liverpool law firm High Street Solicitors (HSS) pushed its insurance premiums up and contributed to its collapse, administrators have revealed.
The practice was sold for £340,000 in a pre-pack in June to Angelus Law, a practice co-owned by HSS’s owner, Tom Hardwick. All 18 staff were made redundant.
The joint administrators, Andrew Hosking and Sean Bucknall of Quantuma, were appointed by lender ArchOver, which held a qualifying floating charge over the firm, with the consent of the other charge-holder VFS Legal – which itself has just gone into administration.
HSS specialised in claims over financial mis-selling, housing disrepair, self-invested personal pensions and Japanese knotweed. Its draft management accounts for the 10 months to 28 February 2023 showed a gross profit of £2.9m on a turnover of nearly £5m, with EBITDA of £473,000.
“The market generally in respect of these case types has struggled in recent times,” the Quantuma report said. “These claims are typically low value and any increase in overheads can significant impact the profitability of the files.
“[HSS] has received a number of adverse costs awards in the last few years and as a result is professional indemnity insurance (PII) premiums have increased significantly.”
This put pressure on the firm’s cash flow and it fell into arrears with HM Revenue & Customs.
Further, case law “favouring defendants” meant certain claim types were unsuccessful, meaning that HSS accrued “significant liabilities” from failed claim types and cases.
With PII due to be renewed in April, the directors tried to negotiate new cover with their insurers but at the same time HSS “fell into further arrears with various creditors, which resulted in a petition being issued against the company from a former employee.
“This petition obtained support from a large creditor and the company was not in a position to settle these liabilities.”
None of the firm, its directors or its shareholders were able to provide or secure any further facilities.
Angelus Law paid £20,000 up front and was due to pay £100,000 on 27 June and then £20,000 at the end of every month for a year. It will also pay 25% of net recoveries above £340,000.
However, the administrators said neither the 27 June nor 30 June payments were made. “Conscious that a further £20,000 falls due on 31 July, the administrators have written to AL for its proposals to discharge the arrears due under the deferred consideration to ensure that the payments are brought up to date as soon as possible.”
ArchOver is owed just over £2m and VFS Legal nearly £6.5m, all in respect of cases that have been transferred to Angelus.
The administrators said they did not market HSS for sale. Given that more than 95% of the files were pledged to the funders, the scope for finding an unconnected purchaser was “remote at best”.
They recorded HSS as having £8.3m of work in progress and £3.1m of unpaid disbursements, with 500 lives files moving over.
Unsecured creditors are owed more than £25m, just over half of which is owed to HSS’s directors. Counsel and medical/expert witnesses are owed £1.4m.
Quantuma said that neither the secured nor unsecured creditors would recover anything, but HM Revenue & Customs was likely to receive up to 27.5% of the £1.5m it was owed.
Angelus Law handles claims about historical abuse, housing disrepair, pension transfers, care home fees, Japanese knotweed, data breach and mis-sold car finance. Mr Hardwick’s LinkedIn profile says he was a director of HSS from 2016 and also of Angelus Law from 2020.
According to local newspaper reports earlier this year, Angelus Law had 75 staff and was planning to open an office in Manchester, with the ambition of recruiting 100 staff to it in a year.