Social enterprise law firm- one third owned by Cambridgeshire County Council - sees losses escalate from £300,000 to £1.2m
PUBLISHED: 11:54 06 January 2020 | UPDATED: 15:42 06 January 2020
A social enterprise law firm - owned in part by Cambridgeshire County Council and two other councils - lost £1.2m in the last financial year. The previous year it lost £300,000.
Accounts released for LGSS Law Ltd also show turn over for the social enterprise company - which Northamptonshire County Council and Central Bedfordshire Council also part own - dropped from £8.7m to £7.8m.
Going forward the company believes it still has a viable future and the annual report quotes directors as having "a reasonable expectation" that LGSS Law will continue "in operational existence for the foreseeable future".
However the report also says LGSS Law remains reliant on the support of its shareholders in the form of loans and overdrafts.
LGSS Law says that during the past year it has "implemented new and more rigorous procedures to manage revenue and costs with a view to achieving profitability".
The company will also be concerned by pensions - the accounts show its future pensions provision (liability) is a major headache having risen by 69 per cent in the year from £2.1m to £3.6m.
Another obstacle in their path may be the break up of Northamptonshire County Council and last year it was revealed LGSS Law's finances were being 'closely monitored' by the board and shareholders because 'recovery of sums are at risk'.
A finance report to the cabinet of Northamptonshire council showed there had been "a number of long-standing, historic billing issues between LGSS Law and Northamptonshire County Council and the council continues to work with LGSS Law to resolve these outstanding queries as a priority, making payment for services which can be suitably evidenced."
A £1 million overdraft given by the council to the social enterprise law firm when it was set up in 2015 has not been repaid and according to a report last summer 'at present the organisation is relying on this resource for working capital.'
The accounts reflect the resignation in May 2018 of Quentin Baker, its former executive director, who left suddenly and without explanation.
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A later statement by Cambridgeshire County Council revealed that Mr Baker, quit after deciding it was time for him "to take on a new challenge". After subsequent spells with councils in Bristol and London, he joined Hertfordshire County Council last summer as head of legal services.
Sources at Shire Hall believe the mistakes made in the early days of LGSS Law - and reflected in the annual accounts- are now a thing of the past.
"It has shown a profit every month in the current financial year," my source told me. "But it could be five years before the deficit is worked off. Clearly the company had got out of control; it is being managed properly now."
Uncertainty remains though over the splitting up of Northamptonshire County Council and the future of its children's services, case work of the latter providing considerable income to LGSS Law Ltd. If children's services are hived off to a trust - as seems possible - access to legal services could change and an income stream for LGSS Law Ltd cut off.
LGSS Law has been commented upon by many of the readers of the influential Law Society Gazette.
Some praised its work on behalf of local authority clients in care proceedings whilst others, noting the highest paid director of LGSS Law is on around £100,000 a year, felt this paled into insignificance when compared to city law firms.
But others felt it was an anomalous position for a law firm to be a social enterprise company and queried whether it was right that local councils were guaranteeing overdrafts and loans.
"It seems to have survived solely on the subventions of its owners from public money," said another. "The use of public money to support private legal businesses - other than in paying fees for work done - has been questioned in the last couple of years. Is there a distinction here?
Another wrote: "This model can definitely work, but the premise is that it has not to be structured as a for-profit business.
"The logic of a social enterprise is completely different from that of a limited company or a partnership. This must be clear to every person that works there and to the management.
"A management that earns six-figure' salaries is in the wrong place."