Honister Capital administrator Grant Thornton last week revealed an uninsured claim of £6m against subsidiary Burns Anderson helped ensure the group went into administration.
Honister entered administration on 3 July, leaving around 900 advisers unable to trade. A letter sent to creditors last week, and seen by Mortgage Strategy’s sister publication Money Marketing, says the group’s PI cover ran out on July 2 and the existing insurer, Liberty Mutual, had declined to renew.
With the upcoming £6m claim and claims history, directors believed they would not be able to gain cover at a commercially viable rate, says the administrator. The letter also reveals that some of the underlying brands were forecast to breach FSA capital adequacy limits in July.
It is understood the £6m claim could be related to a Ucis deal involving commercial property.
The letter reveals current estimates of £14.5m of claims liabilities against the group, £11m against Burns Anderson, £3m against Sage and £235,000 against Honister Partners. This relates to 55 out of 230 claims made. The others have either been rejected or are yet to be assessed.
Burns Anderson has outstanding liabilities totalling £14m with assets of £9.3m.
Trail commissions have been classed as assets of the company because Grant Thornton says there was no evidence of direct contractual relationships between advisers and providers.
In July, Grant Thornton sold Honister’s recurring and pipeline commission to corporate IFA firm MacRobins with advisers forced to pay between 3 per cent and 53 per cent of recurring annual commissions to novate clients to another firm.
The letter states that although advisers taking up the novation offer will be given commissions received by the joint administrator since its appointment, a 10 per cent fee, equally split between MacRobins and the administrator, will be charged.
Grant Thornton has previously written to providers threatening to take legal action against firms that facilitate bulk transfers of ex-Honister clients although Aviva, Standard Life and Skandia say they will continue to facilitate them.
The creditors’ letter also reveals that the administrators had attempted to find run-off cover but only one out of 22 insurers were prepared to offer the cover and it set an excess of £15m, which was rejected by the administrator.
A meeting of creditors will be held on 10 September in Bristol.