Parabis off to a flying start as an ABS

Parabis, the parent company of Plexus Law and Cogent Law, has turned in an impressive first year of trading as an ABS entity, seeing its revenues rise 8% to £108m and its profits rise a whopping 41.4% to £18.4 million.

The business was launched in 2000 as an LLP by Tim Oliver (formerly partner of Berrymans Lace Mawer), and provides a range of legal and claims-handling services for the insurance sector.  It has been something of a trail-blazer in the post-Legal Services Act world, being the first PE-backed ABS structure, following a £50m investment by Duke Street.

Since then the firm has been expanding rapidly. In November it launched a Scottish office in Glasgow and has followed up 6 months later with the establishment of an Edinburgh office, to be staffed by a partner-led team poached from Brodies.

There has been much discussion on whether law firms and PE houses make easy bed-fellows, but the early signs for this particular marriage appear good.

Insurance giants shake up the legal services market

Insurance companies are making their anticipated moves into the legal services market following the Jackson reforms which came into effect on 1^st April, banning the payment of personal injury referral fees. Referral fees became notorious in recent years for having spawned an unwelcome compensation culture in the UK, with personal injury claims relating to motor accidents and whiplash injuries being particularly prevalent.

The RAC has agreed a 5 year commercial deal whereby Quindell Portfolio, the AIM-listed ABS firm, will manage all before-the-event (BTE) legal expenses work generated by RAC’s huge motor book, which accounts for some 7 million customers and approximately 10% of the UK market.  In a highly innovative deal, instead of paying a referral fee for claims as it would have done in the past, Quindell issued warrants for more than 250 million shares to RAC valued at 13p each, the equivalent of a £32.5m shareholding. If the warrants are exercised, they would give the RAC a significant financial interest in Quindell. The deal as structured gives Quindell a significant cash-flow benefit and means it will not need to draw down the £80m funding it raised to support its working capital requirements.  

Quindell will provide a comprehensive service for all RAC customer personal injury claims, including medical reporting, rehabilitation and auto accident repair. The agreement follows a successful pilot of the scheme which is claimed to have reduced claims costs by 20 per cent.

Admiral, the insurance giant, has also decided that a strategic move into the legal services market is warranted, and has chosen to effect this through two separate joint ventures with existing law firms.

The first joint venture, to be known as Admiral Law, is with Bristol law firm Lyons Davidson and will cover Admiral’s main book of business. 

The second, to be known as BDE Law, will be with Cardiff based Cordner Lewis, and will cover 3 subsidiary motor claims businesses owned by Admiral – Bell, Diamond and elephant.co.uk.

The SRA has granted alternative ABS licences for the two ventures, effective 1^st May 2013.

It seems that Admiral are not expecting the moves to be a major profit contributor, but believe  they will improve customer service by being able to handle claims in house

Finally, insurance giant Ageas has announced a partnership with personal injury law firm NewLaw Solicitors after completing its ABS conversion, to be called Ageas Law.  The firm will provide legal services for customers making non-fault personal injury claims sustained after a motor accident.

One might speculate which is the bigger driver for these changes – the Legal Services Act or the Jackson reforms – but whatever the answer it is clear that there are huge changes sweeping the personal injury and allied insurance industries.  It seems that smaller independent PI firms are going to have a very tough time in the future, unless they are one of the firms swallowed up by the major insurers.

Are law firms getting cold feet on outsourcing?

There has been something of a trend towards outsourcing in the legal profession in recent years, mostly in relation to back office functions but sometimes also in relation to client work.  It is interesting therefore to see that two firms which have gone down that route, Osborne Clarke (“OC”) and CMS Cameron McKenna (“CMS”) have both decided to scale back part of their outsourcing agreements with Integreon.

OC set up its arrangements with Integreon in 2009, transferring a number of its back office staff to the outsourcer.  65 of those former OC employees will return to OC from Integreon following the changes to the outsourcing arrangements 4 years into the 7 year contract.  OC will bring back in-house client relationship management, IT, and events management.   OC is not cutting all ties with Integreon, which will continue a number of functions including information services and business intelligence.  It is not yet clear how many jobs will be lost in the process, but it is expected to be only a small number.

CMS, who have used Integreon since 2010 after agreeing one of the largest outsourcing contracts the legal market has ever seen (rumoured to be worth £600 million), have announced that they are looking for a different third-party provider to take over one element of the services currently provided by the outsourcer. They did not announce publicly which service this was.

So what should be deduce from all of this?  Is it a sign that law firms are having second thoughts about the outsourcing model?  Or is it that there are problems at Integreon which are unlikely to affect other providers?

OC are bringing a team of people back in house, but are also moving an element of their outsourced services to an alternative provider, Mitie, whereas CMS are simply looking for an alternative outsourcing provider.  This would seem to suggest that both firms still believe that outsourcing can be an effective solution, but that they are not happy with all of the elements currently serviced by Integreon.  It is clear that neither of the firms have lost faith in Integreon entirely – both were keen to stress that they would continue to work with the company, and indeed it appears that CMS are expanding the amount of legal process outsourcing that Integreon carries out on its behalf, so Integreon would seem to be getting something right.

What I suspect that is going on here is that firms are learning that outsourcing a huge range of functions, both back office and in some cases client facing work, to a single provider is a big ask.  There are very different skills sets required to provide an outsourced human resources function, or an IT help-desk, than to have teams of legal researchers.  Just because a business can run a top class out-sourced office management function, does that necessarily mean it is also well equipped to undertake client facing “KYC” requirements or document support?  Whilst it might be tempting to take the easy route of putting all out-sourcing requirements with one single provider, perhaps the experience of CMS and OC is showing us that firms need to be cautious about doing this if the range of services being out-sourced is particularly broad.

Local authorities to use ABS structures in bid to cut costs?

When lawyers think of the potential of ABS structures, it probably isn’t local authorities that spring to mind as amongst those most likely to seize the opportunities that they present. However, according to The Lawyer, South London boroughs Lambeth and Southwark are considering setting up an ABS vehicle in order to cut their legal costs, which currently amount to £8 million and £12 million respectively.

The two London authorities already co-operate together and share legal costs in a number of areas. 

Tandem Law becomes latest casualty of Axiom Fund fiasco

Tandem Law, the Group Litigation Order specialist law firm based in the North of England, appears to be the latest casualty of the Axiom Legal Financing Fund fiasco.

The firm relied on Axiom to finance its cases, a source of funding which has dried up since Axiom was been placed into receivership following allegations of mismanagement and fraud.   As a consequence, Tandem has begun a redundancy consultation and has reportedly given almost the entire workforce “at risk” notices, although the firm’s managing director, Andrew Lindsay, hopes that the actual number of redundancies to be made will be only a small percentage.

Lindsay has been quoted as saying his firm will sue Axiom’s fund manager and its directors for withdrawing funding. 

Axiom Legal Financing Fund Receivership - further info

As reported earlier this week, Cayman Islands’ judge the Honourable Mr. Justice Foster QC, granted an order appointing Grant Thornton as receivers for the Axiom Legal Financing Fund.  In so doing, Justice Foster rejected a proposal by City Equities to take over the running of the Fund in a bid to trade out of its current difficulties – a proposal which was opposed both by the Fund’s directors and by the Cayman Regulator, CIMA, due to perceived conflicts of interest. 

The City Equities proposal had aroused a great deal of suspicion from investors due to the fact that it is under common ownership with Tangerine Investment Management (“Tangerine”), the Fund’s former investment manager, which was sacked when the Fund’s many problems came to light.

The Fund’s directors supported the appointment of Grant Thornton following shareholder preference, despite having initially preferred the appointment of KPMG.

Justice Foster also ordered that Tangerine must pay 60% of the Fund’s costs of the receivership application.

And so it seems that the wheels are set for the winding up of the troubled Fund.  It remains to be seen how much can be salvaged for the investors who backed it, and whether any action will be taken against those responsible for its demise.

Axiom Legal Financing Fund Receivership approved by Cayman Court

The Axiom Legal Financing Fund was yesterday ordered into receivership by a Cayman Islands court, which rejected a "rescue bid" by a company connected with its former investment manager, Tangerine Investment Management.  More to follow.