Auditors for a claims firm which posted multi-million-pound losses last year have expressed ‘significant doubt’ about the company’s ability to continue as a going concern.
In accounts published this week covering the year to 30 March 2024, Manchester firm Barings Law reported that its annual turnover fell slightly to around £374,000. But the firm stated that its loss before tax was £13 million – taking total losses over the past two years to almost £25m.
The company, which has 86 staff members, was operating with net liabilities of around £24m, while cash reserves more than halved to £59,227.
In the independent auditor’s report, Davis Clegg of chartered accountants AMS Audit, drew attention to the company’s current liabilities exceeding total assets, with a ‘significant proportion’ of Barings’ income and economic value related to work in progress from cases run on a contingent fee basis.
Clegg said: ‘Such contingent WIP cannot be recognised as an asset until the outcome of a case becomes certain and measurable. Consequently, the substantial work performed on ongoing cases is not reflected in the balance sheet, whereas the associated funding costs and liabilities are recognised, contributing to the reported deficit at the year end.’
Clegg said the progression of one of the firm’s principal case types had been delayed. In addition, this year the Financial Conduct Authority announced plans for a redress scheme for motor finance claims which seeks to remove firms such as Barings from the compensation process.
The auditor added that a ‘material uncertainty exists that may cause significant doubt on the company’s ability to continue as a going concern but the director deems it appropriate to prepare the financial statements on a going concern basis’.
Owner and chairman Robert Whitehead, who became the sole director in July, said in a strategic report written last week that the firm’s work in progress would equate to revenue of more than £300m if successfully settled.
Post-year-end, he added, the company had put in place a ‘new, stronger finance team; and remains a leading claimant firm, acting for tens of thousands of consumer and commercial clients across multiple group litigation schemes'.
Whithead told the Gazette: ‘Headline revenue and profit figures, while attention-grabbing, do not capture the true position of a litigation-focused firm like ours. Our model requires significant upfront investment in cases that run for several years before they generate income. The £300m in WIP shown in these accounts is the clearest reflection of where the business stands today.
‘The reported loss in this period is a result of Barings Law backing major, long-term cases that we fully expect will deliver substantial returns for clients and for the firm. In litigation, you earn the reward at the end of the journey, and our WIP demonstrates just how much value is already in the pipeline.’
One significant success this year was the High Court ruling in Angel & Ors which was the first motor vehicle finance claim brought by ‘omnibus’ claimants, meaning that Barings can issue proceedings on behalf of multiple claimants at the same time through a single claim form. This will facilitate the processing of claims in a more ‘expedient and costs proportionate manner’.
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Whitehead added that Barings is now one of the leading data breach and privacy firms, with a number of high-profile claims in the High Court.
Whitehead said Barings had made ‘substantial investments’ in its technology and software platforms, a key focus of which has been automation tools to reduce the administrative burden.
He added: ‘While the wider legal market has faced challenging conditions, we have made a conscious decision to continue with planned investment in our workforce, systems and technology. We are now reaching the point where that strategy will allow us to unlock substantial value as some of our high-value cases reach resolution. Meanwhile, our commitment to delivering exceptional client outcomes on high-value, high-impact consumer cases remains absolutely unchanged.’
As of March 2024, the business had long-term loans valued at £64m. Other loans coming to around £46.5m are secured by fixed and floating charges to Claim Finance & Administration Co Limited. The loans attract an interest rate of between 28% and 37% with no fixed repayment date, but the lender has confirmed it will not seek repayment in the next 12 months.
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