Unsecured creditors owed £1.3m by a firm sold through a pre-pack administration are likely to recoup nothing, it has emerged.
Administrators were called in last month to handle the business of Chichester firm Legalmatters Limited, which closed after plans to link up with a national accountancy firm collapsed. The business and assets of the firm were sold through a pre-pack arrangement worth £70,000 to national firm Axiom DWFM, with 19 staff transferring.
Once administration fees are deducted, just £4,425 remains for HM Revenue & Customs, the firm’s single preferential creditor, which will still be owed almost £119,000.
Unsecured creditors, including trade creditors (owed £249,000), banks and institutions (£310,000) and family and investor loans (£624,000), are likely to receive nothing.
The administrators’ report, prepared by Nicholas Simmonds and Sean Bucknall from insolvency specialist Quantuma, states that Legalmatters was established in 2012 as an alternative business structure dealing in private client work plus residential conveyancing.
The current management team took over in 2016 and began turning around the business, building up more than 40 referrers of work from IFAs and accountants.
But rapid growth and the cost of dealing with historic debts affected cash flow, prompting the firm to seek additional borrowing. A move to new income streams last year resulted in a significant number of staff leaving, making it harder to manage the portfolio.
Possible salvation appeared early this year when Legalmatters started negotiating with a national accountancy firm to provide legal services to its 14,000-plus business clients. The deal fell through due to external debt on the Legalmatters balance sheet. Following this the business was unable to continue with additional capital investment. A deal with one potential buyer collapsed and insolvency specialists were called in.
Administration was deemed the best option as it saved jobs and prevented the risk of an SRA intervention. Joint administrators fees are likely to come to £30,000, with legal fees running to around £34,000.