The burden of massive increases in professional indemnity insurance premiums has been laid bare by the details of the collapse of a high street firm.
Administrators handling the affairs of West Midlands practice Silks Solicitors Limited said the cost of cover rose from £88,000 in 2020 to £210,000 in 2022 – an increase of 238%.
Combined with conveyancing and personal injury work dropping suddenly, the firm went from making a five-figure profit to recording losses within a year. It appointed administrators last month.
A statement of proposals prepared by administrators from Opus Restructuring LLP outlines how Silks recorded turnover of £1.7m in 2021 and a net profit of £86,000. The business had around 30 staff working from offices in Oldbury and Dudley.
But the impact of Covid-19, the reform of personal injury and the end of the stamp duty land tax holiday in 2021 combined to turn similar turnover in 2022 into an £80,000 loss. Directors stated that a ‘conveyancing bubble’ had masked an underlying reduction of work in the practice as a whole, while the firm struggled with the newly imposed inability to recover costs for low-level RTA work. With overheads still high the increase in PII premium ‘eradicated any profitability’, the report states.
It continues: ‘The directors realised the company could not continue to trade in the long term, and were not in a position to fund ongoing trading themselves, nor were they in a position to acquire the business.
‘In the circumstances, they engaged an agent some time ago to seek a buyer for the business on a solvent basis. Unfortunately, despite there being several expressions of interest and negotiations, each of the interested parties withdrew.’
A pre-pack administration was recommended and a sale of the firm’s assets was agreed with Birmingham based Mezzle and London based GT Sewart. Mezzle agreed a deal for £25,000 and took on 15 of the remaining Silks staff. It will also pay 50% of the realised work in progress worth around £200,000. GT Stewart arranged to acquire the family and care files worth £106,410, with 50% of the realised sums being due to the Silks insolvency estate. Five staff were transferred to GT.
The firm had a secured arrangement with its bank Barclays and owes around £350,000. It owes a further £325,000 to other creditors. Unsecured creditors are likely to receive around 0.1p in the pound.
Administrations costs are likely to be £50,000, based on 213 hours at an hourly rate of £238.
