The collapse of McDermott Smith leaves creditors uncertain about repayments.
- Administrators uncertain about timeline for payouts to creditors.
- Founders of the firm grew its turnover threefold in a single year.
- The firm owes £37.5 million to creditors, with £900,000 owed to Fenchurch Legal.
- Many client files transferred to another firm, now also shut down by SRA.
McDermott Smith’s collapse has led to a significant degree of uncertainty regarding creditor repayments. Administrators from Quantuma, who were appointed by the secured creditor Fenchurch Legal, have admitted that a timeline for creditor payouts remains unknown. The entire process of liquidation might extend up to two more years, with the administrators still seeking clarity on the financial situation.
Founded in 2016 by solicitor Andrew Smith, McDermott Smith achieved a remarkable increase in turnover, tripling its figures in a year in 2019. However, the rapid growth appears to have led to financial instability, with the firm holding £37 million worth of work in progress as of March 2023, while debts surged to £37.5 million. The company’s rapid expansion was also evident in its workforce, which almost tripled from 24 in 2022 to 69 a year later.
Remarkably, when administrators visited the firm’s offices, they discovered the premises completely empty. This came after a prior visit by the Solicitors Regulation Authority (SRA), which had also found the office deserted. The SRA intervened after recognising an insolvency event, leading to the shutdown of McDermott Smith and another firm, BPS Solicitors, to which many of McDermott Smith’s client files had been transferred.
There is ongoing concern about creditors’ fates, as indicated by the administrators’ report noting the case’s above-average complexity due to necessary investigations and potential claims. Secured creditors, including Fenchurch Legal and Katch Fund Solutions, are owed substantial sums, with only preferential creditors likely to reclaim any funds. The administration’s overheads had already reached £501,000 by mid-August, driven by extensive hours and investigation requirements.
The future for McDermott Smith’s creditors remains bleak, with complexity and uncertainty prevailing.
