Administrators and SRA found collapsed Liverpool firm's office empty

The administrators of a collapsed Liverpool firm have admitted they do not know if creditors will receive a return, amid ongoing uncertainty over exactly how the business came to grief.   

Joint administrators from Quantuma handling the affairs of McDermott Smith gave an update this month on progress, but said it could be another two years for the business to be liquidated.

Quantuma was appointed by one of the firm’s lenders, Fenchurch Legal, in July. The Solicitors Regulation Authority chose to intervene at around the same time after noting that a relevant insolvency event had occurred.

McDermott Smith, established in February 2016, had one remaining director, founder and solicitor Andrew Smith. The business, which specialised in handling claims for personal injury, housing disrepair, motor finance, debt and Japanese knotweed, had grown rapidly, with turnover tripling in a year in 2019. The most recent accounts, for the year ended March 2023, showed that work in progress was judged to be worth £37m, up from £5.6m a year before. Meanwhile, the amount owed to creditors within a year jumped from £5.8m to £37.5m.

Headcount grew from 24 in 2022 to 69 a year later.

The administrators noted that, as they were appointed by a secured creditor, there was little information to be provided regarding wider events leading up to the firm’s closure. They attended the company’s trading premises and found the site completely cleared of all office equipment and furniture. It transpired that a week before the administration, the SRA had also attended and found the site empty.

A ‘significant’ number of client files and staff had been transferred to another Liverpool firm, BPS Solicitors, which was subsequently shut down last month by the SRA.

Immediate efforts were made by the McDermott Smith administrators to freeze its bank accounts. There had been an arrangement for the proceeds of work in progress to be split between the McDermott Smith administration and BPS, but any realisations there may now be absorbed by the SRA to fund the intervention.

Due to delays in receiving company records, administrators are still unable to produce an estimated outcome for any McDermott Smith creditor, or even establish what is owed.

Of the secured creditors, Fenchurch Legal is owed around £900,000, while a further £7m is owed to Katch Fund Solutions, another litigation funder. The ‘most likely outcome’ is that only preferential or secondary preferential creditors will receive any of their money back.

The report added: ‘Creditors should note that the joint administrators consider this case to be of above-average complexity. This is largely due to the level of investigations which are required to be undertaken and the anticipated complexities of any claims which the joint administrator may wish to bring in due course.’

Administration fees and expenses had reached £501,000 by 19 August, based on almost 1,600 hours at an average hourly rate of £314.