Axiom Ince unlikely to pay £6m tax bill

Axiom Ince unlikely to pay £6m tax bill

Feb 20, 2024

Administrators at Axiom Ince said that the law firm will not have the funds to pay a multimillion pound tax bill

Axiom Ince went into administration last October after forensic accountants discovered that £66m in client funds was missing from bank accounts with Barclays and State Bank of India, while financial records were incomplete.

HMRC is owed nearly £6m in unpaid taxes and has submitted a claim for two separate tax bills, the first for £4,479,102 as a secondary preferential creditor, and a second for £1,400,259, identified as an unsecured creditor amount, leaving an unpaid tax bill of £5,879,361.

The latest report issued by joint administrators, Neil Bennett, Alex Cadwallader and Andrew Poxon of Leonard Curtis indicated they were still adjudicating on the HMRC claim and warned that ‘while the estimated outcome statement currently shows no return to any class of creditor, this is because the joint administrators have no way of providing a worthwhile estimate of the asset realisations, and these are currently listed as uncertain’.

On the specific HMRC debt, they said it was ‘currently uncertain as to whether a distribution will be made to secondary preferential creditors. This is largely to do with the uncertainty of the position with the deficiencies in client money’.

Another problem has been that key members of the finance team have been made redundant and the directors have not provided a ‘statement of affairs’ due to the complex nature of the various systems operated by the company. As a result, administrators have had to produce an estimate of the financial position.

Axiom Ince went into administration in October 2023 and was shut down by the Solicitors Regulation Authority. The collapse occurred only five months after Axiom DWFM, headed up by sole director Pragnesh Modhwadia, bought Ince out of administration in May 2023, followed by a pre-pack deal to acquire Plexus last September.

The administrators’ noted that ‘the company largely grew its trade from the purchase of business and assets of law firms, many of which had financial issues’. Both Ince and Plexus were bought in pre-packaged sales when the firms were in administration, transactions which took place in Apil and July respectively. None of the acquisitions were integrated into the existing business and separate practice management and IT systems were all used to run each acquired firm.

Before the business collapsed, forensic accountants from BDO were brought in to examine the bank accounts ‘to better understand the position with regards to missing funds’. BDO was approached to handle the administration but declined the business.

Since then, the Solicitors Regulation Authority (SRA) launched an investigation into the owner of the business, Modhwadia and two directors, Idnan Liaqat and Shyam Mistry, all three of whom have been suspended by the regulator ‘on the grounds of suspected dishonesty and breach of the Solicitors’ Account Rules’.

The three directors also face an ongoing Serious Fraud Office (SFO) investigation, related to ‘a shortfall in the client account’, whereby law firms are legally required to hold client funds in a safe escrow account. This has resulted in a freezing order against the assets of Modhwadia amounting to £64m.

Leonard Curtis estimated that fees for the administration will amount to at least £1m, with nearly 400 hours billed for the first six weeks after the collapse.