Unsecured creditors are set to lose more than £7m from the collapse of a London firm sold through a pre-pack administration.

A statement of administrators’ proposals for West End firm Jeffrey Green Russell, published by Companies House, reveals that the firm went into administration in October with debts of almost £8m.

The statement shows the firm had a book value estimated at £9.75m, but this is likely to realise only around £875,000.

Creditors include Lloyds Bank, owed more than £900,000 in overdraft and loan facilities; HMRC, owed more than £700,000 and trade creditors who are owed more than £1.17m. Unsecured debts to directors and members are also estimated around £4.7m.

The statement explains that Jeffrey Green Russell traded profitably and recorded an operating profit of £478,000 for the year ending 31 March 2015.

But the firm, which offered a range of legal services including litigation and private client services, saw an increase in the number of claims being notified to their professional indemnity insurers in the last year.

Increased insurance costs caused the firm to struggle to meet existing creditor commitments and the decision was made in April 2015 to put it up for sale.

With no concrete offers made, national firm Pinsent Masons and insolvency specialist Quantuma were instructed to provide professional advice.

They established that Jeffrey Green Russell could not continue without additional investment from lenders or directors, neither of which wished to add to their levels of existing debt.

With a solvent merger of the business not possible, the decision was taken to find a buyer through a pre-pack administration as the best outcome for creditors and to avoid an intervention by the Solicitors Regulation Authority.

London firm Gordon Dadds, which had registered an interest during the sale process, made a formal offer for the acquisition of the business and assets and a deal was subsequently completed. As part of the sale, Gordon Dadds paid Jeffrey Green Russell’s former insurer for the run-off liability. If this had not taken place, the insurer would have been a creditor for £800,000.

According to the statement, the goodwill of the company was estimated at almost £4.9m, but this asset does not hold any recoverable value.

The £1.265m book value of the work in progress has been written down by 30%, and the £2.8m value of the company’s debtors written down by 20%.