A major lender to the legal sector is preparing to go into administration, leaving firms relying on its support scrambling for alternative finance arrangements.

According to court documents, VFS Legal Limited gave notice last Friday of its intention to appoint an administrator. The company is not responding to messages or answering phone calls.

The company specialises in funding low value litigation claims and in particular the cost of disbursements. In the past eight years, it has provided around £150m across more than 25,000 cases and has historic testimonials on its website from established legal brands Slater and Gordon and Switalskis.

But the most recently-published accounts for VFS Legal, covering the year to 30 June 2022, suggest the business was facing a looming problem in the form of a bank loan of £35.6m, which required ‘significant monthly repayments’ until September 2024.

This loan was not sufficient to finance the activities of the company until September 2024 and the accounts stated it would ‘severely impact’ cash flow of the company, which had not been able to secure additional finance. The accounts said this outstanding loan created a ‘material uncertainty which may cast doubt on the company’s ability to continue as a going concern’.

While VFS Legal was owed around £49.6m by law firms, the outstanding loan had increased its debts due within the next year from £2.8m to £38.7m.

There is now the question of whether administrators will attempt to claw back monies owed by law firms. One industry expert told the Gazette that firms could go into insolvency due to a lack of essential working capital.

Steve Din, founder of Doorway Capital, a provider of risk capital to law firms, said six firms had been in contact over the weekend asking to refinance their borrowings with VFS Legal. He said: ‘Whilst clients of VFS Legal have so far only been asked for proposals to repay what is owing, they should now be concerned that is followed by a formal demand for repayment.

‘It appears that VFS have the right to force clients with disbursement facilities to repurchase disbursements at par, which many clients will probably be unable to honour.’

On its website, VFS Legal Funding carries quotes from Slater and Gordon saying it was a ‘valued commercial partner’ of the national firm.

In a statement today, the firm said: ‘Slater and Gordon has not drawn on funding from VFS for some time, their administration has not come as a surprise to us, and we have planned accordingly. As a result, this is not anticipated to have any impact on our day-to-day business.’

 

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