Insurance law firm Parabis owed creditors £121m when it collapsed and entered into administration last November, an accountants report reveals.

According to a report by administrators AlixPartners, secured creditors of the Parabis group are owed £73.4m, and unsecured creditors are owed £47.5m.

Secured creditors, largely made up of the firm's banks, stand to receive approximately £32.5m after the costs of the administration are taken into account, leaving them £40m out of pocket.

The secured lending syndicate includes Lloyds Banking Group which is owed £16.7m and Royal Bank of Scotland which is owed £8.8m.

Unsecured creditors stand to receive less than 2% of the money they are owed leaving them with a loss of around £46.6m.

According to the report Parabis has more than 2,500 unsecured creditors.

Unsecured creditors include King & Wood Mallesons, which is owed £249,431; Capita Medical Reporting, which is owed £2.58m; call centre provider Webhelp UK, which is owed £462,970; Leeds City Council, which is owed £97,874; and publisher LexisNexus UK which is owed £103,676.

A significant number of barristers are among the unsecured creditors including Christopher Bamford of Tanfield Chambers who is owed £58,493, Paul Russell QC of 12 King's Bench Walk who is owed £52,215, Simon Wilton of Hailsham Chambers who is owed £47,059 and Quintin Fraser of 39 Essex Street Chambers who is owed £66,967.

In addition to the £121m owed to creditors Parabis also had loan notes worth £43.2m from private equity firm Duke Street, £23.9m of vendor loan notes and £43.1m of management loan notes.

Causes of the collapse
The report said that regulatory changes, a poor understanding of the commercial implications of Alternative Business Structures (ABSs), buying other businesses at the top of the market and a lack of integration were key factors in the collapse of Parabis.

Parabis acquired insurance law firm Everatts Solicitors in 2011 and personal injury firm Greenwoods in 2013, when the personal injury market was booming in an attempt to widen Parabis's insurer client base. However, after the purchases, two major insurers moved significant volumes of work to other firms, which led to a loss of "talented fee earners".

The report also said the firms acquired were not well-integrated into the wider group, with separate accounting and case management systems, which led to inefficiencies.

The introduction of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO) – which banned firms from paying for referrals – and the Ministry of Justice's fixed fee regime, hit the firm's claimant business with revenue per case falling from an average £2,300 per case to £850.

In response to the regulatory changes, the firm established ABS joint ventures with its key clients Saga, Direct Line Insurance Group (DLG) and RSA. However, the lack of leverage on pricing with the insurer clients meant that the profitability of work fell from approximately £250 per case to below £50.

These issues led to increased financial pressure, which the management responded to with aggressive cost cutting. Annualised costs of approximately £13m were removed from the group's costs base during the 2014 financial year.

However, by June 2015 it became clear that Parabis would be unlikely to continue to trade beyond the medium term and AlixPartners Corporate Finance was engaged on 17 June 2015 to sell all or part of the group.

Sell off
In November, the Parabis group entered a pre-pack administration and was split up and sold off.

A management group, which included Plexus senior partner Tim Roberts, and partners Nick Addyman, Andrew McDougall and former partner and founder Tim Oliver, bought part of the group under the name Plexus Law.

DLG acquired the ABS it had set up with Parabis following the group's collapse for the nominal sum of £1. Approximately 150 lawyers who had been a part of that group transferred over to DLG.

According to the report Plexus Law paid a total of £2.25m initial consideration with an estimated £6.5m deferred consideration.