Unsecured creditors of failed firm Davenport Lyons will be offered as little as 10p in the pound on outstanding debts.
A joint administrators’ report for the London practice, which went into administration in April, has revealed the firm owes more than £13.36m to unsecured creditors.
This includes £1.3m to HM Revenue & Customs, more than £6m to the Royal Bank of Scotland, £2.3m to landlords and £2.3m to trade creditors. There is also an outstanding £770,000 owed for professional indemnity insurance.
The report, prepared by Baker Tilly, said that based upon the information currently available, it is estimated unsecured creditors will receive between 10 and 15 pence in the pound. An initial meeting of creditors will be held in London on 4 July.
The full-service firm, which employed 75 people in the heart of the West End of London, was acquired as part of a pre-pack administration in April by London firm Gordon Dadds.
The administrators report said Davenport Lyons had assets amounting to more than £11.5m, of which £3.28m is likely to be realised.
The report explains how the 75-year-old firm, run as a traditional partnership, had chosen to respond to the 2008 recession by being ‘aggressive’, and seeking to pick up talent being released by other firms in an attempt to grow revenue.
In the first few years this worked well, with lateral hires bringing with them large books of business.
Revenues reached a plateau in 2010/11 of £23m, but by 2013/14 that had slipped to £16m, albeit over 10 rather than 12 months.
Profits dipped significantly, from a high of £4.7m in 2010/11 to just £15,000 in 2011/12. The firm made a loss of £73,000 the following year and had already lost £547,000 in the 10 months recorded in 2013/14.
All the time, the reserves in the current account were diminishing, from more than £2m in 2009 to a £3.8m overdraft by April.
Bank debt ‘spiked’ in 2011 to more than £6m and partners were forced to suspend ‘significant’ parts of their drawings in order to pay off debt.
By 2012 and beyond, the report noted, Davenport Lyons ‘was starting to struggle with a significant debt burden and a worsening debt/revenue ratio.
‘People were starting to depart the business more rapidly than before albeit for a wide variety of reasons… this still negatively affected morale and the working environment.’
RBS brought in its own advisers to monitor the situation, while the firm also spent nine months trying to find suitable new trading premises after former leases expired.
In September, the SRA categorised Davenport Lyons as ‘high risk’ and were subject to monitoring from its supervision team which placed a ‘significant, although entirely necessary, time burden’ on the firm. The administrators’ report says that the SRA backed the pre-pack, which avoided the need for statutory intervention. Had the firm been intervened in, the costs would have been borne by the liquidation estate and creditors would have got nothing.
Davenport Lyons started talking with other firms about a merger in autumn 2013, with conversations held with more than 20 firms before the deal with Gordon Dadds.
As well as the debt repayment offer, creditors will also be asked to approve legal and administration costs accrued since April.
Legal fees due to Pinsent Masons are estimated at £51,225, while Baker Tilly has billed £274,642.
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