Quindell outperforms expectations following ABS conversion

Quindell Portfolio the AIM-listed company which received its alternative business structure (ABS) licences last month, has reported strong 2012 results, ahead of market expectations. 

In October Quindell Legal Services Limited acquired Pinto Potts Solicitors ("Pinto Potts") for an initial £1.5 million of cash plus 87,500,000 Quindell shares, with another £1.5 million in cash consideration being payable in the second half of 2013.  This was rapidly followed by the acquisition of The Compensation Lawyers ("TCL") in December, for a payment of £30,000 in cash and the issue today of 2,200,000 Quindell shares.

It seems that the acquisition strategy is proving to be a success. Quindell, which also offers outsourcing services in the insurance and telecoms sectors, expects revenue to be approximately £165m, with adjusted EBITDA of approximately £47m (including the figures of the acquired law firms for the period during which they were in partnership with Quindell prior to the issuance of the ABS licence).  Furthermore, Quindell is achieving an EBITDA margin of 28% - a figure that many firms would like to emulate.

Rob Terry, Chairman and Group Chief Executive said: 

“ Quindell Legal Services is now the UK's largest, claimant focused, personal injury law firm (based on forecast run rate volumes) having secured long-term relationships with some of the UK's most respected motor related brands during 2012. These long-term relationships are part of Quindell's wider claims outsourcing arrangements covering vehicle repair, hire, recovery, broader legal services, medical reporting and multi disciplinary rehabilitation services all helping to lower the total cost of claims for the insurance industry whilst protecting the quality of customer journey and the rights of the consumer.”

At the end of the day, the success of listed companies will be determined by their share price.  Qunidell’s shares are currently trading at around 14.75 – a very considerable improvement on the 52 week low of 4.70 which was seen last summer.  This will doubtless make the former Pinto Potts and TCL owners very glad that they took such a significant element of their sale consideration in Quindell stock.

A revolution in social mobility for lawyers?

Given the huge hikes in University fees in the last few years, it is not surprising that many students are becoming sceptical about the value of degrees, and opting for alternative ways of achieving their career ambitions.  As might be expected, many of the less academic degrees at dubious quality universities are being shunned as a consequence, but it seems that the full-time study even of such high-brow subjects as law are not immune to the winds of change and fewer students are willing to fork out £27,000 in fees and probably another £20,000 in living expenses to study a 3 year degree course which qualifies them....well, to do some more studying.

There has for a long time been a route into the legal profession as a paralegal or legal executive without going to university – through ILEx – and last year the Government provided £1m in funding for a new apprenticeship scheme for paralegals, which is expected to launch this year.  A number of more forward-thinking law firms have risen to the challenge themselves and begun to offer apprenticeships for school leavers for legal exec roles. However, until now, there has not in recent years been an alternative direct way into becoming a fully-fledged solicitor, without either doing a law degree, or another degree followed by the CPE.

That is all about to change.  The Minister for skills, Matthew Hancock, has announced government plans to introduce new higher-level apprenticeships, equivalent to bachelors degrees and masters degrees, in subjects including law, accountancy and engineering.  BPP Law School intends to launch an apprenticeship scheme for school leavers wanting to become lawyers, and is currently in talks with regulators on the issue.

Law is often a profession mired in intellectual snobbery, and I am sure there will be many who will decry the fact that these steps will lower standards.  I am not at all sure that this will be the case.  Much of what I studied during my 3 year law degree has been of very little, if any, value in my working life (never once have I been asked to opine on Roman Law or Jurisprudence, both of which were compulsory topics).  The study of law is essentially vocational and I think it is well suited to an apprenticeship style of learning which is routed firmly in the “real world” of day to day legal practice.

I am sure that many academic high-flyers who have the luxury of parents willing and able to fund them through university, or a relaxed attitude to the prospect of spending many years mired in debt, will continue to study law at our top class universities – and good luck to them, I would not want to knock that.  But it must be a good thing that for those of more modest means, or whose personal circumstances mean that a full time degree course is not a practical or desirable option, there will now be a sensible route which could potentially take them to the top of their profession. 

The proof of the pudding will be in the attitude of the big firms to those who have come through the apprenticeship route.  It is easy to see how the apprenticeships could be a great route in to smaller law firms doing relatively routine legal work – and that in itself would be a step in the right direction for social mobility.  But the real added value would be if the magic circle firms could embrace the concept and genuinely regard applicants with an apprenticeship background as on a par with those who have studied at university, provided they demonstrate the right aptitudes and attitudes.  Now that really would make a revolutionary change within the legal profession.  The question is, will any of the magic circle firms have the guts to give it a go?

Axiom Legal Financing Fund stakeholders to oppose receivership application

Battle lines are being drawn up between the various stakeholders in the beleaguered Axiom Legal Financing Fund (the “Fund”).

Taylor Moor (“TM”), who acted as the main distributors of the Fund, are angry that the directors notified that shareholders that they would apply to the Cayman Grand Court for KPMG to be appointed as receivers of the Fund, without putting it to a shareholder vote.  Originally, this was one of the matters upon which the shareholders were expected to vote at the EGM earlier this month, but at short notice the resolution was withdrawn and the directors announced that they intended to go ahead with the receivership application unilaterally. TM intend to take legal action to oppose this move.

TM believe that the Fund should be put into liquidation rather than administration, with independent insolvency practitioners being appointed as liquidators. They believe that this would enable the liquidators to conduct a thorough investigation into the past affairs of the Fund and to take action against anyone who has been guilty of wrong-doing. The powers of Receivers are materially more limited in this regard. Furthermore, they are unhappy that the sole aim of a receivership is to ensure an orderly closure of the Fund – a decision which they believe is premature given that the investigation into the Fund’s loan portfolio is far from complete.

TM are also unhappy with the costs of investigating the situation to date ($1.3 million) and the lack of a complete and coherent report detailing the findings.

Whatever the merits of the case, this does seem to be a situation of poor stakeholder management by the Fund directors.  They must be aware of the sensitivities of the investors and need to be seen to take all steps that are necessary to investigate fully and take action if wrong-doing has occurred.  By proceeding with a receivership application in circumstances where they have not permitted the shareholders a vote on the issue, and in the knowledge that the main distributor of the Fund is clearly opposed, they are setting themselves on a difficult and antagonistic course.  Given the atmosphere of allegations and suspicion, it does appear unnecessarily inflammatory to proceed with an application that may limit a comprehensive investigation, without fully explaining the rationale for that to those who stand to lose their investment.

The Cayman Islands court is expected to hear the parties on 31^st January.

Axiom Legal Financing Fund managers asleep at the wheel

KPMG, the firm appointed initially to carry out a review of goings-on at embattled Axiom Legal Financing Fund, are reported to have said that whilst the fund does not appear to be a Ponzi scheme the managers of the suspended £117m fund carried out "little or no due diligence" on the cases in which they invested shareholders' money, and did not follow investment criteria.

Following a period of suspension, the funds directors have now appealed to have the fund wound up because it is unable to meet its financial obligations.  According to IFA online, the court documents disclose that KPMG's investigations "reveal grounds for suspecting there has been mismanagement" of the fund's assets, and that the net asset value of the fund has been overstated.  The size of the shortfall is not clear at this stage.

The loans made by the fund appear to have been made to law firms conducting genuine cases, but are unlikely to be repaid within the time frames required by the fund’s investment criteria.  Loans should only have been made to cases which could be completed within a year, whereas most, if not all, of the cases being funded will take much longer than this to resolve – in some cases up to 3 years – and in at least one case a loan appears to have been made to a firm which was close to insolvency at the time. 

There is also controversy regarding the payment of a “facilitation fee” of 50% of the loan value.

The findings disclosed in the court paper seem to show a situation where there has been a real breakdown in good governance at the fund.  However, it is not yet clear whether some of the stronger allegations of fraud made by OffshoreAlert are well founded – the court papers suggest that further investigation  is required before a conclusion can be drawn on that issue.

Axiom Legal Financing Fund to be wound up

Axiom Legal Financing Fund, which has faced a slew of fraud allegations in recent weeks, is reported to have been put into receivership by its directors following a vote at an Extraordinary General Meeting held in London yesterday.

Until a few months ago, the award-winning Fund had been considered a great success but OffshoreAlert, a Miami based company, began to publish a series of articles raising red flags regarding the Fund’s activities, ultimately suggesting that it appeared to be a Ponzi scheme and questioning the bona fides of the CEO of Tangerine Investment Management, the Fund’s investment manager .

The £117m Cayman Islands based Fund was suspended in October following a flood of redemption requests in response to the allegations, and KPMG were appointed to review what had gone on.  It is understood that KPMG will be now be appointed as receivers, following yesterday’s shareholder vote.

It is not clear where this will leave the investors in the Fund, but some are already believed to be taking legal advice about their options.

Carillion blend legal in-sourcing and out-sourcing services in innovative new market offering

The issue of how to avoid having to pay top-dollar fees for commoditised legal work has been an issue of concern for clients for some years now.  Although lawyers can and do often stress the benefits of having highly qualified experts dealing with a case, the reality is that in many areas of law and commerce a lot of the more straight-forward work which has traditionally been done by lawyers can be done more cheaply and more efficiently elsewhere.  Why pay £300 per hour for a junior lawyer in a private firm to draft something that can be provided much more cheaply through competent technicians in low cost locations? CPA was one of the first companies to recognise that large clients might want to insist on some of their legal work being outsourced by their lawyers to cheaper providers, and made a significant fortune out of that market.  Carillion, the FTSE 250 construction group, was one of the early adopters of CPA’s services and encouraged Carillion’s legal panel members to use CPA in order to achieve cost savings.

However, Carillion, has now gone much further than this, and has taken its own interesting hybrid approach to the issue.  Firstly, it has in-sourced a lot of its routine legal work setting up its own Carillion Advisory Services with 60 paralegals doing much of the relatively standardised work on Carillion’s own business needs.  That in itself is nothing unusual – plenty of large businesses have their own in house legal department -  but CAS is also offering legal aid advice to third party clients, and Carillion is now requiring the 12 law firms on its panel of advisors to use CAS for the commoditised elements of the work they are undertaking for the group, in order to minimise costs.

And in a step further still, it is being reported that at least one of the panel firms, Clarkslegal, is now offering CAS services to some of its other clients as a lower cost resource.   So essentially, Carillion has spawned its own legal services outsourcing business, which will now have a wide range of third party clients, as well as handling the company’s own basic legal needs.

At present, the business is not offering legal services which are regulated, but this is not ruled out for the future.  This would see CAS converted into an alternative business structure (ABS).

From my perspective, I think that in having its own in-house team of legal executives, Carillion will probably be able to drive efficiency savings for itself and for third parties to which it offers similar services.  A lot of construction and property related work is relatively commoditised and lends itself well to this approach.  Furthermore, as Carillion’s 12 firm panel of Carillion legal advisers includes some big hitters, including Slaughter and May, Linklaters, Ashurst, Addleshaw Goddard, DLA Piper and Pinsent Masons, CAS should get its venture off to a flying start by effectively requiring them to unbundle their work and refer some of it to CAS.  Who knows where this could lead if CAS proves itself adept at working the model. 

For me, the only slightly discordant note in the offering is the legal aid services, which seem to be to be a very different kettle of fish from commercial advice and document preparation.  I suspect that this offering is more a hangover from the development roots of the CAS team (which became part of the Carillion Group through acquisition) rather than a cue to its future direction.

Investors in Axiom Legal Financing Fund urged to boycott EGM and sack directors

Taylor Moor, the main distributor of embattled Axiom Legal Financing fund is reported by IFA online to have urged investors to sack the fund's directors and boycott the EGM to be held on 11^th December.

Axiom, a Cayman fund which provides financing for no-win, no-fee legal cases in the UK, was suspended in October following serious allegations of fraud made by OffshoreAlert.  The allegations have been strenuously denied by those involved, and KPMG has been engaged to investigate the situation.

However, having apparently grown impatient with the lack of sufficient explanation from the directors on how this situation has arisen, the fund’s main distributor, Taylor Moor, has written to investors saying "it is time for investors to take control of the situation" and to replace the current directors with new, impartial individuals.

According to IFA Online, Taylor Moor has urged investors to boycott the emergency EGM to discuss the future of the fund on 11^th December, because KPMG have not been given enough time to investigate.  Concerns are being expressed that because the investors have so little information available, they will be in no position to vote on the important matters to be discussed at the EGM.