A London firm collapsed when its large roster of CFA-funded cases failed to settle as forecast, new documents have revealed.
Seth Lovis & Co Solicitors had specialised in conditional fee agreement cases based on damages claims, before the firm ceased trading in March. The closure resulted in all 45 fee-earning staff being made redundant.
According to a notice of administrator’s proposals filed with Companies House this week, the firm’s working capital requirements increased during 2017/18, largely due to so many cavity wall claims not settling. While some claims, where clients sought compensation for faulty insulation, were resolved, in the majority of cases the defendants did not admit liability and the firm was unable to recover any fees quickly enough.
In order to meet the increasing budget shortfall, Seth Lovis borrowed around £3.7m in unsecured loans. The firm already had facilities with secured lenders RBS, VFS and Doorway Capital.
The notice reports that a number of competing claims arose between secured creditors over their respective security over the firm’s work in progress, with lawyers instructed in the matter. They indicated it would not be possible to resolve the competing claims without an application to the court. At the same time, the firm did not have sufficient capital available to be able to unwind these issues, fund the WIP and meeting operating costs and creditor payments.
Twenty firms were contacted about a potential merger or acquisition, with one party interested in restructuring the whole practice. This ultimately failed when the split of WIP realisations could not be agreed between the secured lenders.
With a Solicitors Regulation Authority intervention possible – likely to cost around £1m – file transfer agent Recovery First arranged for a switch of 1,400 live matters to other firms, with the appointment of joint administrators, Smith & Williamson and Leonard Curtis Recovery Limited, to be confirmed at a later date.
According to the notice the firm’s secured creditors should ultimately be paid in full following the sale of former premises and completion of the WIP. A dividend to preferential creditors is expected, but any dividend to unsecured creditors, owed around £3.5m by the time of the firm’s collapse, is viewed as ‘unlikely’.
Pre-administration costs and expenses have come to £287,000, of which around £183,000 has been paid. A further update is expected by the start of September.