A collapsed personal injury firm has become one of the first to cite imminent sweeping reforms of the sector as a factor in its demise.
A statement prepared by administrators for Kemp Legal Limited, formerly of Shepherd's Bush, London, said the proposed changes – whilst not yet implemented and subject to consultation – meant the business would no longer be viable.
The document, prepared by Manchester-based Path Business Recovery Limited, states that Kemp Legal was founded in 2011 specialising in personal injury and RTA claims, growing rapidly from inception and opening an office in Bury in 2013 to deal with disease claims.
Although filed accounts showed a £500,000 loss in its first year, the company then posted total profits of around £330,000 over the next two years.
However the administrators said the business encountered ‘significant difficulties’ over the past 12 months due to legislation and reforms of the personal injury market which has caused profit margins to fall.
The statement says: ‘In November 2015 the government proposed that the small claims limit should rise for personal injury claims from £1,000 to £5,000. This meant that a personal injury claim would have to be worth in excess of £5,000 in order for the successful party to be able to claim back any of their legal fees from their opponent, resulting in a significant decrease in viable claims.'
It adds: ‘In addition, Lord Justice Jackson has called for the introduction of fixed costs to apply to all claims valued up to £250,000 which would have further implications on the company’s margins.’
The administrators say Kemp Legal obtained a loan from Prime Medical Healthcare Limited, which was subsequently extended. Around £300,000 is still owed. Kemp Legal fell in arrears by one payment and the terms of the loan stipulated if that happened for a second month, it would be in default and Prime would be able to serve demand for the full amount.
With outstanding debts of around £120,000 to HM Revenue & Customs, the company was deemed to be insolvent and winding down proceedings were started, with administrators appointed in October.
The company has around 420 ‘live’ cases which are expected to realise £170,000.
Unsecured creditors are stated to have claims valued around £1.28m but are unlikely to receive any payout other than ones to those with floating charge realisations.
Administrators claimed total fees of £6,715 based on 34.5 hours at an average hourly rate of £195.