A former legal services lender has revealed that it made total losses of £84.2m in the last financial year. The annual report and financial statements for Novitas Loans, covering the year to 31 July 2023 and published just before Christmas, shows that the company recognised extra losses on loans of £117m.
Novitas was a key player in the boom in litigation funding following the Jackson review, providing consumer loans to finance legal services such as divorces through dozens of law firms.
But, as announced in 2021, the company permanently ceased the approval of lending to new customers across all its products.
Novitas, which is a subsidiary of financial services group Close Brothers, continues to work with solicitors and insurers to manage its existing book of loans.
But a review of cases which had been granted funding has now identified an unspecified number with ‘limited’ prospects of success. The majority of loans in the portfolio are now assessed as ‘credit-impaired’, which has resulted in lower interest income being recognised.
During the year, Novitas received a capital injection from Close Brothers of £100m to support the business in meeting its liabilities and operating expenses.
The company will look to recoup some of its losses through litigation, the report states. It reveals that Novitas has ‘accelerated its efforts to resolve the issues surrounding its business’, including starting formal legal action against an unnamed after-the-event insurer. It is considering its position in respect of other insurers and has already settled a legal case with another smaller ATE provider during the year.
Having made overall provision for losses of £184m, Novitas said: ‘The company is confident that this level of provision adequately reflects the remaining risk of credit losses for the loan book and is focused on maximising the recovery of remaining loan balances, either through the successful outcome of cases or recourse to the customers’ ATE insurers.’
The report states that Close Brothers has confirmed its intention to provide financial support to Novitas for as long as it remains a subsidiary, either through not seeking the repayment of amounts advanced or paying further amounts as required.