One of the biggest UK litigation funders has announced that it has ceased lending to new customers, despite announcing assets of more than £200m just over a year ago, the Gazette has learned.
Novitas Loans said it will continue to focus on managing existing cases and to process drawdowns against existing loan facilities. Applications will also be considered for extension funding.
The decision was included as part of half-year financial results published in September with the London Stock Exchange by Novitas’ listed owner, Close Brothers. The company said it had evaluated its businesses to ensure they will continue to generate long-term value, and the overall profile of Novitas was ‘no longer compatible with our long-term strategy and risk appetite, particularly given the recent credit performance of the business’. It was decided in July to permanently cease lending to new customer across all products offered by Novitas and to withdraw from the legal services market.
The decision came despite the most recent set of financial accounts, covering the year ending 31 July 2020, appearing to show Novitas in a healthy position, with total assets up 51.5% to £219m and net interest income increasing 67.5% to £34m. Profit before taxation in 2019/20 decreased slightly to £10.3m, but dividends paid to directors were up from £6.1m to £8.3m.
The board reported that while the impact of Covid-19 had lowered the company’s profitability, the business remained well positioned and was adequately resourced to continue into the foreseeable future.
Since then, it has emerged that, in July, Novitas was ordered by the Financial Ombudsman Service (FOS) to end a lending agreement with one client and cap her liability at £1,745, after a finding that she was treated unfairly in relation to a £45,000 loan to fund legal proceedings in a separation matter.
The deal was arranged by an unnamed firm of solicitors, who had pressured her into signing up for the Novitas loan and subsequently obstructed mediation between the client and her former partner. The firm has since been intervened into by the SRA and closed down because of suspected dishonesty by one of its partners. The FOS found Novitas had not made sufficient checks before approving the loan and concluded it would not be fair or reasonable for the client to pay interest fees or charges.
Novitas also appears to have been affected by the collapse of claims firms that have been affected by personal injury reforms in recent years. The lender was one of two companies that issued formal demands to Liverpool firm Pure Legal in October for the repayments of outstanding liabilities, and applied to the High Court seeking an order for administration after these demands were not met.
An administrators’ report last month stated that Novitas was owed around £1.85m by mid-October after three loan facilities expired earlier this year. It was suggested in the report that Novitas can be expected to be repaid in full – and certainly ahead of unsecured creditors – but this relies on Pure’s work in progress realising more than £30m after being farmed out to three other firms.
Salisbury-based Novitas was bought in 2017 by Close Brothers Group, one of the biggest names in merchant banking, for a total of £31m. Novitas offered lending for family law cases, contentious probate, clinical negligence and civil litigation.
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