The harsh impact of the Jackson reforms on the costs world is on display today as we reveal that one costs business is closing down, while it has emerged that another has been reborn after the directors bought the assets, files and outstanding WIP from its joint administrators.
Cost Advocates – a subsidiary of Optima Legal, itself owned by Capita – is to close at the end of the year, Litigation Futures can confirm.
All 15 staff are currently going through a redundancy consultation. Capita bought Optima and Cost Advocates in 2014.
Optima managing director Craig Underwood said: “The somewhat distressed and uncertain nature of the market in which the Cost Advocates business trades is well documented, and has presented a number of trading challenges.
“For that reason and because Costs Advocates does not offer any sustainable long-term growth opportunities, we have decided to exit that market and focus on Optima Legal, our law firm offering specialist property and litigation services to the lending sector.”
Meanwhile, Just Costs Solicitors Ltd (JCSL) has acquired all the assets, files and outstanding WIP and invoices from the joint administrators of Just Costs Limited, Paul Stanley and Paul Barber of Begbies Traynor, and from the joint administrators of non-trading subsidiaries Just Costs Budgets Ltd and Just Costs Management Ltd, David Thornhill and Ben Woolrych of FRP.
The jobs of 45 staff have been saved as a result.
The three directors of JCSL are the firm’s figurehead and managing director, Paul Shenton, with fellow solicitors Jodi Booth and Adam Quinn.
The firm has been operating under a company voluntary arrangement (CVA) for a year, under which it sought to repay its creditors in full with 24 monthly payments of £33,000.
Mr Stanley, Begbies’ north-west managing partner, told Litigation Futures that, after a few months, the firm was unable to keep up with the payments.
The creditors of the old firm will receive a portion of what is billed from the WIP as cases conclude, with the bank taking 80% and the other creditors the rest.
The deal is likely to attract criticism for allowing Just Costs to escape from its debts. However, Mr Stanley said it was important to have saved that many jobs in Manchester.
He added that the problem with dealing with a regulated law firm in this situation was that the only options were a sale or for the Solicitors Regulation Authority to shut it down, in which case the creditors would receive nothing.
He added: “What else could be done? The CVA had failed and the CVA administrator had an obligation to wind it up. The choice was to close it down or do a deal with the people who knew the clients and files.”
Mr Stanley explained: “The changes brought in by the Jackson reforms have had a well-publicised effect in the legal market, especially in the personal injury claim arena. We have dealt with many such practices over the past few years.
“There has been a big negative cash flow impact on companies such as Just Costs, which required a change in business model and funding structure.
“We have been working with the company, the Solicitors Regulation Authority and the bank to find a restructuring solution for over eight weeks.
“The complexities of dealing with insolvent legal firms are compounded by client confidentiality issues, regulation and the fact that a non-solicitor/administrator cannot legally trade a solicitor’s practice.”
Mr Shenton said: “This transaction enables the new company to focus on providing their hundreds of solicitor and institutional clients with the market leading service they have come to expect over the last 11 years.
“There will no longer be the burden of substantial historical financial liabilities.
“JCSL has in place clearing bank and finance facilities, along with an enhanced management team, which includes two experienced chartered accountants – James Ritchie, the restructuring advisor on the deal and Eric Golding as non-executive chairman.
“JCSL, with its committed staff, is looking to drive the company forward and meet the opportunities and market challenges that lie ahead… New specialist staff have already been recruited.”