Just Costs Solicitors, which claims to be the country’s largest specialist costs firm, is reported to have agreed a company voluntary arrangement (CVA) earlier this year due to owing £781,758 to HMRC, £29,836 to a financial advisory firm and £17,429 to landlords 12 Office Limited. The total of the creditors’ debt comes to £829,000.[i]
The CVA outlines that this debt will be repaid in 24 monthly contributions of at least £33,836. The arrangement will remain in place unless there is any winding-up order against the company or the company goes into administration.
Further to this, a supervisor will conduct a full review of the arrangement on an annual basis, when Just Costs will be required to supply profit and loss figures for the 12 months previous. During the life of the arrangement, should any contribution fall 30 days into arrears or be less than the minimum amount stipulated, the supervisor will petition a compulsory winding up of the company.
Despite this arrangement, Just Costs insist that it continues to trade profitably and has support of its bank and funders. However, directors are banned from paying themselves dividends for the two year life of the CVA.
In a statement made by the firm, it appeared that the root of its financial difficulties was the introduction of fixed costs for high-volume/low-value personal injury work and the introduction of the costs management process. It stated further:
‘Our major challenge has been to move from cases with a 90-day matter cycle to over 12 months, compounded by the fact that HMRC treat our work in progress as income, even when it has not been invoiced. This lead to the arrangement we have recently entered into with HMRC. This arrangement provides for 100% of the debt to them to be repaid. We will be meeting our liabilities in full. We are dealing with work of an ever-increasing value and complexity. It is business as usual’.
Although, the HMRC announced the switch to taxing work in progress as far back as 1997 and despite it then subsequently being delayed, the first accounting periods which were affected were still as early as those ending 2000-2001.[ii] As such, it is difficult to see how this could be the cause of Just Costs Solicitors’ financial difficulties.
[i] John Hyde, ‘Business As Usual Says Largest Costs Law Firm After £829,000 CVA With Creditors’ (The Law Society Gazette 1 December 2016)< https://www.lawgazette.co.uk/practice/business-as-usual-says-largest-costs-law-firm-after-829000-cva-with-creditors/5059023.article> accessed 1 December 2016.
[ii] The Lawyer, ‘Prepare For Work In Progress Tax’ (The Lawyer, 19 May 1998)< https://www.thelawyer.com/issues/18-may-1998/prepare-for-work-in-progress-tax/> accessed 2 December 2016.