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.