The uphill battle faced by personal injury firms after reforms to the civil claims process is graphically illustrated by the sorry tale of one collapsed firm.
According to a notice of administrator’s proposals published this week, claims firm Nesbit Law Group went from being a business posting £4m turnover in 2015 – and in profit as recently as 2015/16 – to losing around £1.8m in the past two years.
The business had traded since 2003 and was incorporated four years later, thriving until the introduction of civil justice reforms through the Legal Aid, Sentencing and Punishment of Offenders Act in 2013. Director Alan Nesbit opted to shift focus from straightforward RTA cases, for which fixed fees had been slashed, to more complicated matters where the defendant’s insurance company had alleged fraud.
The report, prepared by administrators Benny Woolrych and David Thornhill, states: ‘These cases were more profitable, however the volume of cases significantly reduced and the risk associated with each case, in addition to the time taken to convert, increased. The change in this business model impacted the LLP’s working capital at a time when the volume cases were in run-off causing significant cash flow problems.’
The LLP’s heaadcount fell from 95 across 13 offices in April 2013, to 24 staff in four offices just three years later. By the time of administration last month, 20 people were employed at offices in Birmingham, Liverpool and Bury. All were made redundant following the appointment of administrators.
The report adds that in early 2016 the Bury office was flooded which resulted in the loss of several lucrative contracts leading to further cash flow issues.
Nesbit Law had around 900 ongoing cases which represented its work in progress: these have been sold to Manchester firm Precision Legal and to the panel of solicitors of specialist firm Recovery First. The deal with Precision is that the LLP will receive 25% of profit costs recovered, as well as 10% of any success fees.
The outlook for creditors owed money by the firm now looks bleak. The total estimated recovery is likely to be around £470,000, which will leave a shortfall to all creditors of more than £6.4m.
Unsecured creditors will receive just a fraction of the £4.9m due to them, including employees owed £152,000 in redundancy and notice pay. The LLP’s bank, Barclays, and its funding partner Doorway Capital are each expected to recoup just a fraction of the money owed.
Administrators’ fees are estimated at £150,000, while the law firms Walker Morris and JMW will receive £12,000 and £16,000 respectively for their legal work prior to the appointment of administrators.