Sandstone Legal - Case Update

The High Court has placed a law firm into administration after initially rejecting a prepack proposal made by the firm’s sole director, which the Court found to be misleading and based on material inaccuracies.

Andrew Settle, the sole director of Lancaster-based Sandstone Legal, sought to place the firm into administration. Mr Settle also made a prepack proposal to buy the business through his newly-incorporated company, Precision.

At the initial hearing in early February, the Court rejected the prepack proposal, finding the consideration offered “so low and the margins overall so tight that the prepack did not clear the threshold requirements of Paragraph 11(b) of Schedule B1 for even the third limb of the statutory objective (distribution to one or more secured/preferential creditors)”. As there remained appetite for an administration order among the creditors and a desire to explore competing offers, the Court did not dismiss the administration application but instead adjourned it. Due to the company’s deteriorating financial condition and risk of regulatory intervention by the Solicitors Regulation Authority (SRA), the Court appointed Philippa Smith and Jessica Thomas of Smith & Barnes (who were not the administrators proposed by Mr Settle) as interim managers to oversee the business pending the final hearing of the application.

By the final hearing on 21 February, higher offers had been received, and the Court accepted that administration would achieve a better result for creditors than liquidation. However, the Court took issue with Mr Settle’s lack of candour with the Court, finding that he falsely portrayed the company as a going concern in sworn witness statements despite having made all staff redundant and terminated leases before submitting the application. These misrepresentations '“infected” the qualifying report used to support the prepack—which spoke of the benefits of continued trading, including safeguarding the jobs of 31 employees—and other supporting documents.

Nevertheless, the Court emphasised that placing the company into compulsory liquidation would trigger an SRA intervention, which could severely disrupt client matters. In contrast, administration offered a path for orderly asset sales and continuity.

The Court refused to appoint Mr Settle’s proposed administrators, who had prior ties to him and had not corrected their own documents after discovering the inaccuracies. Instead, the Court appointed the interim managers as administrators, praising them for being highly effective in their work in extremely challenging conditions.

Read the decision HERE.

Professionals involved:

• Benjamin Lafferty of Exchange Chambers (instructed by Ward Hadaway) for the interim managers, Philippa Smith and Jessica Thomas of Smith & Barnes

• Catherine Doran of Radcliffe Chambers (instructed by Mezzle Law) for Andrew Settle

• Louis Doyle KC of Kings Chambers (instructed by Brandsmiths) for Seven Stars Legal, a creditor

• Eleanor Vickery of Selborne Chambers (instructed by Kuit Steinart Levy) for Medical-Legal Appointments, the petitioning creditor

• Duncan Heath of Enterprise Chambers (instructed by Harper James) for TrueHaven SPV, a creditor