Creditors: Diminishing returns
The prospects of creditors of Pure Legal being repaid are diminishing, with claims from unsecured creditors now topping £40m, its administrators have revealed.
Even secured and preferred creditors – including the taxpayer – who the joint administrators said six months ago would be paid in full, now face recovering less than the £13m they are collectively owed.
Regulated law firm Pure Legal was the principal trading entity of the Pure claims group, eight of whose constituent businesses went into administration in November 2021, putting more than 200 people out of work.
In its initial report the same month, the administrators at Kroll said they anticipated there would be a distribution to unsecured creditors but could not say how much.
However, after six months they said they now expected there would be “insufficient realisations” from Pure’s work in progress (WIP) to pay anything to unsecured creditors other than by virtue of the prescribed part – and this position has not changed in the latest report.
The prescribed part is the portion of funds available to unsecured creditors realised from assets subject to floating charges; it is a maximum of £800,000.
Claims by unsecured creditors have continued to rise, from the £23m identified in the directors’ statement of affairs, to nearly £38m and now more than £40m.
Kroll has so far realised £8.4m, although the total of potentially realisable assets is nearly £41m, mainly made up of £30m in WIP – Pure had 20,000 cases on its books at the time of the administration – and £8.7m in disbursements.
But the cost of those realisations has so far been £6.5m, including £2.1m in Kroll’s fees, £787,000 in fees for the solicitor manager of the practice and £803,000 in legal fees.
The administrators said their view was that recoveries from WIP “may be significantly lower” than £30m – although it remained a “very fluid” situation that was “highly dependent” on the pursuit and outcome of cases and ongoing negotiations with after-the-event insurers, litigation funders and the law firms on the Recovery First panel that took on the cases.
Of Pure’s secured creditors, Novitas is owed more than £1.8m loaned under three debentures. In previous reports, the administrators said one for £1.2m – which ranks first for repayment – should be repaid in full; but the latest report said that outcome was now “uncertain”.
Under a subsequent agreement, any funds payable under the debenture will go to Novitas and the Coronavirus business interruption loan scheme – from which Pure borrowed £4.6m – on a pari passu basis.
A funder called Perspective ranks next and Kroll has again downgraded the likelihood that the £6.1m it is owed will be repaid in full. Any remaining recoveries will again be shared between Novitas and the coronavirus scheme pari passu.
Similarly, Kroll no longer said that the preferential creditors, the Redundancy Payments Service (owed £54,000) and HM Revenue & Customs (owed £524,000), were likely to be repaid in full.
In 2021, Pure sold specialist injury firm Pryers to Switalskis and Pure was due to receive £1m of deferred consideration on 1 April 2022, subject to the firm’s financial performance in the first year. But Switalskis said these targets were not met and so nothing was payable. This remains unresolved.
Investigations into whether there are any causes of action against third parties that could increase recoveries for creditors are ongoing, with Kroll saying they have “several lines of enquiry”.
The administration is due to end on 1 November 2023 but the report said the administrators were likely to apply to court to place Pure into compulsory liquidation before then.
So it looks like Perspective Investments and Novitas are unlikely to see any of the money owed to them.. The phrase “live by the sword…” comes to mind.