A fast-growing but loss-making bulk litigation firm has revealed that loans due for repayment this spring carry an interest rate of 37%. However Manchester-based Barings Law has told the Gazette it is on a sound financial footing thanks to a £344m portfolio of work in progress.
The figures appear in accounts for the year to 30 March 2023, which reveal the firm recorded a pre-tax loss of £13.5m in the period. They are the first detailed figures from Barings, founded in 2009. The growing size of the business has required the company to report more details about profit, income and debts, as well as the way it recognises contingent and non-contingent work in progress. Contingent WIP cannot be recognised until the outcome of cases is determined, and given the lifecycle of the firm’s litigation book, a significant amount of WIP is held off the balance sheet.
The declared turnover for 2022/23 was £381,000, down from £6.85m in the previous year. The pre-tax loss totalled £473,000 for 2021/22 but jumped to £13.5m a year later. Gross profit margin fell from 61% to 14%.
In March 2023 Barings had net liabilities of £14.8m, largely due to longer-term debts more than tripling. But the firm said the expected settlement of ongoing cases is ‘far in excess’ of these net liabilities, even though they do not appear on the balance sheet.
In his accompanying report, written last month, director Craig Cooper said the board considers the growth of consumer claims will continue and that there will be resulting opportunities to grow the business.
He stated that if the WIP shown on the year-end balance sheet was adjusted to reflect fees contingent upon the success of cases, potential income would total £272m by March 2024 and £344m by the end of this March.
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Barings has led a series of group litigation claims including business interruption, motor finance and data privacy actions. Many are test cases. The firm is also spearheading a landmark data privacy case against Microsoft and Google.
The funding for these cases has resulted in debts increasing and caused the jump in net liabilities. Money owed to the company rose from £22m to £42m and the amount due to creditors in the next year rose marginally to £11.5m. Sums due after more than one year rose from £13.5m to more than £45m.
The company has in place a facility with a third-party lender to continue to provide working capital finance to enable the current outstanding cases to settle, in addition to working capital from a number of other lenders.
Loans worth a total of £34m were arranged in 2021 with fixed and floating charges on all property and assets of the company. These facilities were agreed with Dublin-based Claim Finance & Administration Co Limited and attract an interest rate of 37%, with a repayment date of this March, the accounts show.
In a statement this week, Barings Law said it ‘remains on sound financial footing and is fully committed to ongoing investment in its people, infrastructure, and technology to further strengthen its strong market position’.
The firm added: ‘We are pleased to report significant growth over the last financial year, driven by strategic investments in expanding operations. These include advancements in technology, infrastructure development, and a push into new markets to meet increasing demand and solidify the firm’s role as a market leader.
‘Looking ahead, Barings Law remains positive about its financial trajectory. By prioritising long-term growth over short-term financial outcomes, it is reaffirming its commitment to serving its clients while securing its future as an industry leader.’
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