Unsecured creditors of collapsed personal injury specialist Prolegal Limited are likely to recover just 10p in the pound.
A statement of administrators’ proposals prepared by insolvency firm Quantuma reveals the firm owes around £1.5m to unsecured creditors, including more than £200,000 to HM Revenue & Customs.
Debts also include almost £4m to Brook Street Holdings and £189,000 to a priority charge-holder named as Simon Edwards Pension Scheme. Edwards was the firm’s sole director when it was sold in a pre-pack administration to Garrynasillagh Ltd in September.
The return to secured creditors is estimated to be 16.2% of outstanding amounts.
Prolegal was incorporated in 2003 and operated from offices in Canary Wharf, London. Initially the company was successful, by 2013 it was posting £433,500 annual profits on £3.8m revenue.
But the RTA and hearing-loss claims specialist appears to have suffered badly from the referral fee ban which came into force in April 2013: results for 2014 show revenue had fallen to £2.8m and the company making a loss of £163,000.
The statement said: ‘Cashflow was a significant issue for the company which, combined with servicing high fixed costs, notably rent for the offices in Canary Wharf, impacted significantly on the company’s financial position.’
By February 2016 it was clear the business needed additional external funding, but primary financier Capita Business Services was not willing to invest any more, and banks were not keen to extend their lending.
The business was offered to 20 firms, with three entering discussions one making an offer, before negotiations broke down for reasons not made clear by administrators.
Once a successor practice was found, it was agreed that Garrynasillagh, which was founded in August 2016, would buy the business. The acquisition was based on £194,000 paid initially, plus 30% of the proceeds of Prolegal's work in progress and 40% of other debts collected. This was aimed at securing as much as possible for creditors and avoiding a winding up petition by HMRC.
The company's work in progress is valued at £2.1m, with book debts of £437,500.
Administration fees are estimated by Quantuma at £75,000 in total.