Cyber issues plagued insolvent English firm
An administrator's report on a collapsed English law firm shows that its problems were exacerbated by issues resulting from cyber-attacks.
Glaisyers LLP was established in Birmingham more than 150 years ago, but had been insolvent for some time before entering administration earlier this month, according to the Law Society Gazette of England and Wales.
The Gazette says that many of the problems listed in a subsequent statement of proposals prepared by insolvency firm Opus Restructuring will resonate with legal practices in a similar position.
Insurance costs
Before administration, the firm operated a property department that was subject to a cyber-attack.
This increased claims on the firm’s professional-indemnity insurance policy, causing premiums to jump. The insurance costs also made it more difficult to sell the business as a solvent prospect.
With the business stripped back to largely legal-aid work in childcare cases, weekly payments from the Legal Aid Agency were insufficient to meet outgoings.
Rent reduction not enough
Cashflow was consistently stretched and the firm relied on an overdraft with Santander and a rolling facility with another lender.
Both these funding arrangements were personally guaranteed by the firm’s owner, who estimated that he had invested a total of £475,000.
Glaisyers, which employed 19 people, moved its premises twice in recent years to cut costs but, despite a significant reduction in rent, this was insufficient to return the firm the profitability.
External issues
Even after going into administration, external issues negatively affected the business, according to the Gazette.
The firm eventually agreed a pre-pack administration, with family and prison-law cases sold to Cartwright King for £50,000.
But in a letter to all known creditors, Opus explained that four offers had initially been made by different potential buyers for the majority of the assets.
One of the offers was withdrawn due to a solicitor advising the firm being uncomfortable about the risk of being seen as a successor practice for insurance purposes.
The best initial offer was made before the Legal Aid Agency suffered a cyber-attack of its own, which resulted in uncertainty of recovery of contingency payments and no guarantees that the work-in-progress balance was accurate.
The offer was withdrawn before contractual terms could be agreed, as was the second-highest offer.
Administrators estimate that £268,000 is likely to be available to pay preferential creditors in full. The total deficiency for all creditors is expected to be more than £1.5 million.