Details have now been published of the wreckage
following collapse of the Parabis empire last autumn.
The administrators appointed in November filed their
report during the interval between Christmas and New Year. All 142 pages are available to download from Companies
House or you can opt for the succinct summary
from John Hyde in the Law Society
Gazette of 6 January 2016.
With more than 2,500 unsecured creditors set to lose
in aggregate around £46 million this is notable as the highest profile failure
so far of one of the relatively new alternative
business structures within the legal industry. The ABS was the legal regulatory
vehicle enabled by the Courts and Legal Services Act 2007 after the report of former
deputy governor of the Bank of England, Sir David Clementi, had concluded that
the legal services market would benefit from permitting non-lawyers to
participate in the ownership of law firms.
One key thread of his brief was to find a framework
that would “best promote competition, innovation and the public and
consumer interest in an efficient, effective and independent legal sector”.
Hold that
thought..
In the best tradition, these new reforms would not
actually be implemented for another five years.
It was Spring 2012 before the Solicitors Regulation Authority finally
unveiled the identity of the first three successful applicants for an ABS
licence. One of those was our old
multi-talented chum, the Co-op.
Parabis was one of the first such structures to obtain
private equity investment and the Duke Street equity house is listed as having £43
million or so still invested at the time of the administration. At the end of
the day, they and other secured creditors will share a shortfall of around £41
million.
The list of unsecured creditors within the
administrator’s report rivals the closing credits of Return of The King. It’s not
just intergroup debts, large rate bills outstanding to city councils and unpaid
medical reporting agencies that make up the big numbers here. I can’t say I’ll
weep for many of those responsible for the likes of The abominable
Dr Botox or Fun boy three
Herds of m’learned friends are left whistling, some of
them for hefty five figure sums. The
seasonable celebrations in the clerks’ rooms of a handful of London chambers
must have been particularly muted.
Anyone remember old style law firms crashing and burning
on this scale?
Well, so what?
I’m not in that list and hopefully you’re not either. What does it matter?
It matters because of the damage done to the rest of
the legal profession (yes, profession),
the perception of the industry and the fabric of the law itself.
People motivated by profit alone pump-up these
leviathans with the aim of winning the market and part of that strategy is to
take business away from the established players – even better, put them out of
the game. The cost of that –
“efficiencies” as insurers love to call it – are part of the opening war of
attrition and the consequent damage to the rest of the infrastructure.
The punters look on with no respect for these cheap turns,
interested only in paying as little as possible (they think), if they must pay
anything, and shifting responsibility for a shoddy job (which they won’t
recognize, anyway) onto somebody – anybody – else.
And when they crash there are plenty of cheers for
what they think is the pain inflicted on ‘fat cat’ lawyers – ‘ambulances chasers’
that they were happy to get into bed with in the heat of the moment.
Well they’re right…and they’re wrong. “Tarred with the
same brush” may be an over-worked phrase but it’s hard to find something more
apt.
The point is that every time these fast-buck merchants
hit the headlines with something like this they damage the perception of those
who actually care about the law and how it serves the individual. People who
will ultimately put reputation and pride in what they do ahead of profit.
Many of those people are disappearing from the
profession. I don’t say it was difficult to foresee but I wrote of this long
ago in No more heroes.
Whilst the people who know slip quietly away to escape the
frustration and often loneliness of practising in an increasingly chaotic world
shaped only by the venality of insurers, the law withers and dies from misuse.
It’s going to be that rusty old machinery in the corner of the shed that I
described in Road to Ruin.
I see in the reports the observations that Parabis entered into joint ventures with some major
insurance companies but “enjoyed little leverage”. No shit?
“Having moved
into the insurance market, the group was then hit by two large insurers moving
significant volumes of work elsewhere, leading to the departure of key
fee-earners and reduced funds to cover the costs of maintaining the
infrastructure of the business.”
As one commentator on John Hyde’s report observed, if
you’re going to sup with the Devil then you need a long spoon. I’d rather not
even sit at the table.
