Administrators to probe payments by collapsing Liverpool firm

Administrators are probing potentially questionable payments to third parties made in the build-up to a law firm's collapse, the Gazette can reveal.

Joint administrators from insolvency practice Quantuma Advisory said they have identified ‘a number’ of payments made from Liverpool firm McDermott Smith which require further investigation.

The firm was shut down by the Solicitors Regulation Authority in July 2024.

In a progress report, the joint administrators said they have continued detailed investigations into the conduct of the firm’s directors and the affairs of the company. This has included analysis of McDermott Smith’s insurance arrangements, a review of the process for obtaining expert evidence and a look at the output of the experts instructed. Interviews with senior staff members have been held in the past six months. 

Companies are prevented through the Insolvency Act from making payments as a ‘preference’ to a particular creditor in the run-up to going out of business. Administrators can apply to the court for an antecedent order to reverse or unwind any such transaction.

The progress report states that payments made from McDermott Smith to third parties are ‘of concern to the joint administrators as many of [them] were made during a period that could be considered a preference’.

The administrators add: ‘These investigations remain ongoing and may (albeit these are not yet fully concluded to enable the joint administrators to hold a definitive view) give rise to a number of antecedent actions that could be issued by the joint administrators against various parties.’

The situation around these payments and possible claims against PI insurers leaves creditors in an uncertain position. To date, 23 claims have been received from unsecured creditors seeking a total of £2.245m. A further 14 claims have been received from former staff, treated as preferential creditors, for unpaid holiday and wages. Secured creditors are funders Fenchurch Legal and Katch Fund Solutions, owed £900,000 and £7m respectively - but even these parties are uncertain about what they will get back.

Previous administrators’ reports had estimated that the firm, which specialised in handling claims for personal injury, housing disrepair, motor finance, debt and Japanese knotweed, had work in progress worth £37m. The latest report does not say whether any of that potential income has been recouped.

The administrators had estimated that their fees would come to £501,000 in total: in the first year the costs incurred come to £321,000, based on 965 hours at an average hourly rate of £332. Investigation costs have already reached £200,000 and are expected to exceed the £218,000 estimate.