Costly claims brought against a previously thriving firm frightened off insurers and accelerated its downfall, new papers confirm. According to a notice of administrator’s proposals, Liverpool firm EAD Solicitors was already in decline because of the downturn in the personal injury sector and increasing operational costs.

But the document, filed with Companies House, also states that in January 2017 the firm employed a commercial property solicitor, and during the course of his employment, ’it became known that there were issues with some of the transactions carried out by the employee’.

As a result of his alleged actions, claims have been brought against the firm amounting to around £15m, which were defended through the firm’s professional indemnity insurance. However, the firm’s insurers then advised that the policy may not be renewed from 1 October, and discussions were subsequently started with two other parties about a pre-packaged administration sale.

National firm Simpson Millar confirmed the acquisition of the practice in September, along with the transfer of all 70 EAD staff. The pre-pack arrangement was said by administrator Leonard Curtis to be necessary to avoid a costly intervention by the SRA.

The Simpson Millar offer comprised 40% of all realisations received from disbursements, client matters and debtors, with an initial £100,000 paid within five days of completion. Consideration is capped at around £2.6m.

Litigation costs funder VFS Legal is named as a secured creditor owed around £970,000, and it is expected this debt will be repaid in full.

Clydesdale Bank was owed around £1.8m, with personal guarantees provided to the bank by the four equity partners and two former partners. Again, this is likely to be repaid in full.

It is unclear at this stage the value of debts owed to unsecured creditors, but the notice confirms there will be insufficient funds to pay them a dividend.

For work done prior to the appointment of administrators, Leonard Curtis will be paid around £153,000, with solicitors Addleshaw Goddard paid £65,000 for its dealing with the sale contract and accompanying sale documents and appointment formalities.

The administrators’ costs represent 405 hours at a rate of £377 per hour.

EAD Solicitors, which was founded in 1974, had been comfortably in the black for its last three full years in business, although profits dipped from £2.2m in 2016/17 to £1.3m in 2017/18. Turnover was as high as £7.3m in 2015/16.