Unsecured creditors owed money by failed defendant firm Plexus are ‘highly unlikely’ to recover anything after the business was sold for just £1.1m, new documents have revealed.

A notice of administrator’s proposals, filed with Companies House this week, stated that even preferential creditors including HM Revenue & Customs can expect to recover little of what they are owed once the insolvency process is complete.

Joint administrators from Interpath Advisory were appointed last month to handle the business and assets of Plexus Law and they arranged an immediate sale to Axiom Ince Limited.

The newly published report discloses the names of dozens of trade creditors. They range from law firms including Macfarlanes and Lewis Silkin, to taxi firms, cleaning companies, florists and a supplier of water coolers. The estimated creditor shortfall tops £20m in total. 

The report states that the total consideration for the Plexus group in England and Scotland was £1.1m, of which £350,000 was paid immediately. The remainder will be collected by the joint administrators in three quarterly instalments of £250,000.

The sale preserved the employment of the group’s workforce, with 512 employees transferring to Axiom on completion of the sale. The remaining 105 staff members across the group objected to the transfer and their employment ceased immediately, although no redundancies were made.

Plexus Group was set up in November 2018. Five months later, Origin Equity and Access Capital Partners purchased a minority interest in the business and installed a new management team.

This team detected what administrators described as ‘financial irregularities’ in relation to historical performance and accountants were drafted in to review the group’s financial statements. It was found that contingent fees were over-recognised in the accounts leading to an overstatement of profits in 2020 and 2021. Previously reported profits of around £6m were adjusted to a loss-making position, and the new investors reached a deal in January with the former sellers to compensate for their overpayment for share capital. As a result, the investors took a 100% stake in the Plexus business.

Faced with a competitive market and the pandemic, group sales reduced from £47.1m in 2021/22 to £39.8m in 2022/23. One lost client resulted in £2.4m lost revenue, while revenue from three of the group’s largest clients also fell by £4.9m in total.

Gross profit was around £13.8m for 2022/23 - a fall of 24% year-on-year – while net assets also continued to fall.

Managers developed a turnaround plan and initiatives to respond to the revenue drop, but were hampered by a lack of available cash. By May this year, the group faced a short-term funding requirement of £1.8m, while HMRC had issued a demand for immediate payment of the £4.3m it believed was owed. Plexus then arranged funding from Access and a loan from another backer, AIB Group.

Access Capital Partners, the majority shareholder, appears at this stage to have cut its losses and withdrawn its support and proposed funding, leaving the group no longer viable in its current form.

Administrators confirmed that AIB was owed around £4.6m at the date of their appointment, but the lender can expect to receive just £185,000 under its fixed charge security and will suffer a ‘significant shortfall’ on its indebtedness. Any payment to HMRC, now estimated to be owed £3.3m, is deemed to be ‘highly unlikely’, as it is for unsecured creditors.

The administrators also revealed that their incurred time costs so far are around £24,000, based on 53 hours at an average rate of £449 per hour.

 

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