SPV administrations expose deeper problems at Fenchurch Legal

Administrators’ proposals for several special purpose vehicles within the Fenchurch Legal group have provided a broader picture of the financing structure behind the collapsed litigation funder, showing that millions of pounds raised from investors were channelled through a series of SPVs into Fenchurch Legal Limited, leaving those vehicles dependent on recoveries from the same disputed litigation loan book now being examined in the parent company’s administration.

The new filings cover Fenchurch SPV 2 Limited, Fenchurch SPV 3 Limited, Fenchurch SPV 4 Limited, Fenchurch SPV 5 Limited and Fenchurch SPV 6 Limited. Although separate insolvency firms have been appointed across the vehicles, the reports describe a broadly similar structure: investor or lender money was raised at SPV level and advanced, directly or indirectly, to Fenchurch Legal to finance loans to solicitors handling high-volume litigation.

The proposals add another layer to the picture already emerging from Fenchurch Legal’s own administration, where administrator Vincent Simmons of BV Corporate Recovery & Insolvency Services is investigating a loan book with a stated gross value of approximately £16 million, competing security and assignment claims, pre-appointment transfers and payments, and the sale of the loan book to a connected party.

For SPVs 3, 4 and 6, joint administrators Jeremy Woodside and Tracey Pye of Quantuma Advisory said the companies were created to accept investor funds from around the world and form part of a wider group established to finance litigation. The companies themselves had no employees, with their administration and accounting handled through the wider Fenchurch structure.

The scale of the flows is significant. Quantuma said available records indicate approximately £14.1 million was raised from investors through Fenchurch SPV 3, approximately £7.4 million through SPV 4, and approximately £4.5 million through SPV 6, with the money understood to have been provided to Fenchurch Legal for onward litigation funding. The administrators are still reconciling those records and warned that the precise intercompany balances remain uncertain.

That uncertainty is particularly acute for SPV 3. Management records reviewed by Quantuma showed a balance of approximately £18.1 million due from Fenchurch Legal, materially above the approximately £14.1 million recorded as having been raised from investors. The administrators said they are investigating the discrepancy and have not yet been able to verify the exact amount owed.

SPV 4’s records indicated approximately £1.06 million due from Fenchurch Legal, while records supplied in relation to SPV 6 also recorded an intercompany balance of approximately £1.06 million. Quantuma cautioned that the underlying management information has not been independently reviewed or verified and contains discrepancies requiring further investigation.

The administrators said they have not identified loan books or litigation receivables held directly by SPVs 3, 4 or 6. Instead, their principal assets appear to be intercompany claims against Fenchurch Legal. Recoveries will therefore depend substantially on what is ultimately realised from the parent funder and how competing security interests against that estate are resolved.

That gives the SPVs exposure to the same problem already confronting creditors of Fenchurch Legal. Quantuma said Fenchurch Legal’s administrator has sold the loan book and is now collecting the underlying solicitor loans, but the SPV administrators have not yet been provided with enough information to assess likely recoveries or when funds might become available. They said further information has been requested and investors will be updated as the position becomes clearer.

The proposals for Fenchurch SPV 2, administered by Andrew Pear and Michael Solomons of Moorfields Advisory, similarly describe a vehicle whose fortunes were tied directly to Fenchurch Legal. SPV 2 raised capital through up to £5.5 million of 11% secured loan notes, with Legaleze Limited acting as security trustee, and advanced funds into the parent litigation funder.

SPV 2 never generated a profit. Director Stephen Thick told Moorfields that its model appeared unsustainable because commissions and other costs incurred before the vehicle received its return prevented it from producing the returns investors expected. Once Fenchurch Legal entered administration and further funding was unavailable, SPV 2 could no longer meet its own liabilities.

Its administrators have identified approximately £1.94 million of potential unsecured claims from the company’s books and records. They said recoveries depend on the intercompany balance owed by Fenchurch Legal and will be subordinated in practice to secured claims against the parent, including those of Legaleze. Moorfields is also reviewing the connected-party sale of Fenchurch Legal’s loan book to determine whether the transaction achieved fair value.

Fenchurch SPV 5 presents a somewhat different structure. Andrew Hosking and Andrew Andronikou of BTG Begbies Traynor were appointed joint administrators on 26 June following an application by secured lender Cadence Group Platform, LLC. Cadence had provided an asset-backed facility of up to £2.8 million, which SPV 5 used to acquire interests in legal case receivables connected with the Fenchurch platform.

BTG said the administration followed Fenchurch Legal’s sale in May of its loan book and associated receivables to Lowry Trading Limited, the creditor that had previously applied to place the parent company into administration. SPV 5 asserted that it held beneficial interests and security over certain case receivables included in that transaction.

The SPV 5 administrators are therefore investigating both the receivables themselves and the connected-party transaction. They said their immediate objective is to identify and realise any assets belonging beneficially to SPV 5, including receivables now held or collected through the Fenchurch loan book structure, with any recovery expected principally to benefit Cadence as secured creditor.

Taken together, the proposals show that Fenchurch Legal was not funded through a single lender or vehicle but through a network of SPVs that raised or borrowed substantial sums before advancing those funds into the litigation finance business. The resulting insolvencies have left several estates effectively competing for value generated by the same underlying pool of solicitor receivables.

The reports also highlight the difficulty administrators face in determining where that value ultimately belongs. Quantuma said it is reviewing intercompany balances, security documents and investor arrangements across SPVs 3, 4 and 6, while Moorfields is examining the security and recoveries affecting SPV 2 and BTG is separately investigating SPV 5’s claimed beneficial interests in receivables sold by Fenchurch Legal.

With the parent loan book expected to take years to collect, and its ownership and security structure already under investigation, none of the administrators is yet able to provide a reliable estimate of returns to investors or unsecured creditors.

The administrators’ proposals for SPV 2 can be found HERE, for SPV 3, SPV 4 and SPV 6 can be found HERE, and for SPV 5 can be found HERE.

Separate funding vehicles Fenchurch SPV 1 and Fenchurch SPV 7 are not in administration.