Ince: Ran out of cash
National law firm Axiom DWFM is paying £2.2m for listed practice Ince Group, whose creditors are owed £41m, it has emerged.
Investec Bank is owed nearly £17m as the secured creditor, HM Revenue & Customs (HMRC) £15m, with hundreds of unsecured creditors – including dozens of barristers – making up the rest.
Ince went into administration in April. Andrew Hosking and Sean Bucknall, the joint administrators at Quantuma, sold it to Axiom DWFM in a pre-pack two weeks later.
Their statement of proposals, published by Companies House this week, said Axiom paid £1m upfront and is paying the remaining £1.2m in instalments of £50,000 a month for two years, secured by a personal guarantee.
There was a further potential realisation which could result in up to £500,000 more becoming payable “linked to potential cost savings by Axiom DWFM”.
The administrators said that, whilst the price may seem at the “lower end”, given the book value of the work in progress and debtors, around half of this was over 180 days old, and Axiom also took on “various risks and costs”.
These included 287 employee contracts, archiving 170,000 boxes of files, aged and orphaned client account balances, costs of two offices in London and one in Cardiff, and the “significant” outstanding professional indemnity insurance premium for the current trading year.
Any return to Investec was said to be “subject to costs”, while HMRC could receive 4.7p in the pound. Unsecured creditors will receive nothing.
Quantuma also commissioned a report from an independent ‘evaluator’, which is required in pre-packs where the sale involves connected persons. Though here the purchaser was not connected, it was sought because “substantively all” of Ince’s partners were expected to move over.
Kevin Murphy, managing director of Compass Evaluator Reports, said he was satisfied that £2.2m was a reasonable amount in the circumstances.
“The benefits of concluding a sale of the business and assets on a going concern basis are significant and far outweigh the alternative of either a cessation of trading and a liquidation, or a sale of multiple parts of the business to multiple purchasers,” he wrote.
Axiom DWFM is the group’s successor practice, without which its indemnity insurance would have gone into run-off at a cost of £7m. An intervention by the Solicitors Regulation Authority could have cost £10m.
The administrators’ statement cited five factors behind the firm becoming insolvent. It had a high cost base, “creating significant pressure on cash flow”, while market uncertainty slowed down debtor collections and receipts.
Partner and staff uncertainty resulted in “a loss of usual trading efficiencies and performance”, it went on, while an inability to fund key overheads and operational costs provided a “significant barrier” to a solvent acquisition by a third party.
Finally, Quantuma highlighted the group’s inability to conclude the outstanding audited accounts, “which restricted the Ince Group’s ability to restructure legacy debt”.
Trading in its shares was suspended at the start of this year because it had still to publish its 2021/22 and first-half 2022/23 results.
The report explained that, by early April, it was clear that the group required more funding than it could secure from its bank, and neither the group nor its investors “were in a position to provide sufficient working capital to service” its obligations.
The group only had enough cash to see it through to the end of April.
Ince was also unsuccessful in negotiating a ‘time to pay’ arrangement with HMRC, which instead said it intended to issue winding-up petitions against a number of companies in the group.
Mr Murphy’s report noted that there were outstanding partner tax payments and distributions which could not be met too, which had the potential to cause partner departures and “significant disruption”.
The Quantuma statement added: “The joint administrators are aware that this is a high-profile and significant law firm failure. We have been made aware by various parties of concerns in relation to historical actions. We shall be investigating these areas as part of our duties.”
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