A foundering costs firm was dealt a decisive blow by the announcement of fixed fees over the summer, new documents have revealed.

A notice of administrator’s proposals for Just Costs Limited was published on Companies House this week outlining the sequence of events that ultimately forced the firm into administration in October.

Insolvency specialist Begbies Traynor reveals in the document that unsecured creditors owed around £1.75m are unlikely to receive anything in return after the firm was bought through a pre-pack deal by a new company called Just Costs Solicitors. Paul Shenton (pictured), a director of the collapsed firm, is also a director of the new company.

The document reveals that Just Costs Limited was sold for a total of £430,000, including an upfront payment of £20,000 and 5.1% of gross realisations per month.

The administrators insist there was no option but to agree to the sale after the company had been unable to meet commitments made in a company voluntary agreement last year. Without a sale the business would have ceased, 51 staff would lose their jobs and the Solicitors Regulation Authority would probably have had to intervene.

Just Costs Limited was founded in 2006 and 95% of its work was from law firms. However, the Jackson reforms of 2013 ‘significantly impacted’ the types and profit of work in the marketplace, the document states, with the average time taken to collect cash from clients rising from three to 12 months.

The firm obtained specialist working capital financing but this increased debt service costs by £11,000 a month. Directors took pay cuts from February 2016 and further pay cuts in June 2017, before taking no salary in recent months.

With monthly debt repayments after the CVA was agreed coming to £70,000 a month, the company was unable to pay the VAT bill due at the end of April this year.

The document states that Shenton then sought to re-mortgage his family home to inject £200,000 capital into the business to meet the VAT bill.

A ‘turnaround adviser’ was drafted in, but the announcement of the latest Jackson reforms – which opened the way for fixed costs across lower-value civil justice claims – ‘made it clear there needed to be a complete revisit of the company structure and consideration for survival’.

Administrators say Just Costs Limited owes £506,000 to NatWest Bank under a fixed and floating charge, which will be partly paid back.

The claims of unsecured creditors are estimated at almost £1.75m. However based upon realisations to date and estimated future realisations there will be insufficient funds to enable any dividend, other than a prescribed fund of £46,000, based on property sales. The biggest unsecured creditor is HM Revenue and Customs which is owed around £1.37m.

Total pre-administration costs are around £100,000 including £27,000 legal costs payable to international firm Addleshaw Goddard.