McDermott Smith Law, a Liverpool firm running motor finance and other consumer claims, collapsed into administration in July 2024, six months after SSB Law - owing creditors an estimated £37.5m against work in progress valued at around £37m.
Against SSB's headline-grabbing £200m failure, McDermott Smith's numbers might look secondary - but they weren't small. Litigation funder Fenchurch Legal, owed a comparatively modest £900,000, applied for administrators to be appointed; a much larger secured creditor at £7m, did not instigate the process. It was the smaller exposure that forced the issue. By the time a later progress report was filed, 23 unsecured creditors were claiming £2.245m between them, and 14 former staff had lodged preferential claims for unpaid wages and holiday. The Solicitors Regulation Authority intervened around the same time, citing an insolvency event, and administrators have since said they are investigating a number of potentially questionable payments made to third parties in the run-up to the collapse.
Files and staff moved from a collapsing firm into a related firm - which was then shut down by the regulator within weeks.
Where the files went
A significant number of client files and staff were transferred, before the collapse, to another Liverpool firm, BPS Solicitors. Clients retain the right to choose their own representation, and files are only released to a new firm once the client has given authorisation - a safeguard that held here, but one that only works if someone is checking it did. Within a month, BPS was itself shut down by the SRA; its manager had close links to McDermott Smith. On the same day, the regulator also shut a second firm, Langton Law, founded by a former McDermott Smith director who had resigned only months earlier, over suspected breaches of accounts rules and the SRA's conduct requirements.
Why the quiet failure matters more than it looks
Attention understandably concentrates on the largest collapse in a sector; the second failure, arriving quietly in its shadow, is often the one that reveals whether the first was an isolated failure of one firm's management or a structural weakness across an entire panel of firms running similar claims. Two years on, administrators have told creditors it could be another two years before the estate is wound up, and as of their most recent public update they still could not say what, if anything, creditors will recover.
None of this - the related-party file transfer, the subsequent regulatory shutdowns, the questionable payments now under investigation - was hidden. It was published, piece by piece, in insolvency and trade press over many months. Routine, ongoing audit of every firm in a funded panel - not just the biggest exposures - is what turns scattered public reporting like this into an early warning, rather than something a funder reconstructs after the money is already gone.
Routine audit of every firm in a funded panel - not just the largest exposures - is what surfaces related-party file transfers and questionable payments before they compound losses further.
Our audit service →David Gerard
Principal, ATE Legal - capital, governance & analytics. View profile →
