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Registered number: 02287394
NHLex Limited
Annual Report and Financial Statements
For the year ended 30 April 2022
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NHLex Limited
Company Information
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T M Blackwell (appointed 1 September 2021)
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P Gower (appointed 1 May 2021)
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Chartered Accountants & Statutory Auditor
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NHLex Limited
Contents
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Independent Auditor's Report
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Statement of Income and Retained Earnings
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Notes to the Financial Statements
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NHLex Limited
Strategic Report
For the year ended 30 April 2022
The directors present their Strategic report for the year ended 30 April 2022.
The directors consider that the business has faced several unusual challenges in the period. Our positioning in the market shielded the business from the drop in claims felt across the personal injury (“PI”) sector. However, ongoing challenges of the COVID Pandemic caused changes in working practices in the Courts, our suppliers, and our business, which led to delays in case progression and in settlement. The business’ trading in the period was adversely affected by an unusual circulation of senior employees. The Board took reasonable and appropriate action to increase capacity, identify risks and make appropriate changes to business activities and recruitment. The directors began to refocus the business resources on faster turnaround of cases and stronger working capital management, but the impact of those changes was not realised before the end of the year ended 30 April 2022.
The business improved governance with the appointment of a new CEO and the creation of an Executive Committee, new Management Board, and use of independent advisors. The business opened new lines of business and adopted more efficient pricing and billing methods. We also introduced a new forecasting process to improve the ability of the business to manage cash.
The Directors consider that the business responded appropriately to the challenges.
Development and performance of the business
The results for the year show turnover of £5,973,041 (2021 as restated - £6,727,128) and an operating loss of £835,321 (2021 as restated - profit £775,958).
The Company has tangible fixed assets, including improvements to leasehold property, office equipment and computer equipment, carried in the financial statements at £64,985 (2021 - £53,173) and trade debtors of £899,122 (2021 - £1,134,781). The company has bank loans of £2,654,555 (2021 - £2,980,000), other loans of £4,360,745 (2021 - £3,833,785) and trade creditors of £223,551 (2021 - £167, 355).
The Directors considered the available resources adequate to continue the business for at least 12 months from the date of this report. At the reporting date the Directors were assessing the level of borrowing and encumbrances on the trading assets of the business.
Future developments
The business environment for providing legal services in the personal injury sector remains challenging and is experiencing considerable market consolidation. Competition between solicitors for good lawyers is intense, leading to pressure on costs. The directors are therefore implementing an improved mix of work, improved culture and communication, enhanced work and technology practices, and improved financial agility; because of these changes it is anticipated that the performance of the company will improve over the coming years and the company will be able to take advantage of an expected upturn in market conditions as COVID effects taper away and general UK economic conditions begin to favour the PI market.
Page 1
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NHLex Limited
Strategic Report (continued)
For the year ended 30 April 2022
Principal risks and uncertainties
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The management of the company and the execution of the company strategy are subject to several risks. Key business risks and uncertainties affecting the company are considered to relate to staff retention, case progression, competition from other legal practices and changes in the legal industry, as well as the current economic outlook and uncertainty.
The Directors have a formal procedure in place to assess known and probable risks and analyse the probability of occurrence, likely impact, available mitigation and the requirements for insurance or other measures. This procedure brings in past and current experience of risk and is reviewed regularly.
The Directors have, since the reporting date, implemented further procedures to improve working capital management and cash flow, reduce lock-up and improve case progression rates.
Going concern
At the end of the financial year now reported on the company undertook a detailed review of its financial position as income receipts were materially lower than forecast in the last 3 months before the reporting date. That had followed an accumulation of delays in case progression during the COVID pandemic resulting in delayed case conclusion and payment. Some of the delayed cases were of large value. Payment of material sums due had therefore been delayed. This continued into spring and early summer of 2022, placing pressure on liquidity. The company was supported throughout this period via active engagement with its bankers and secured creditors while the Company’s management implemented changes to practices to enhance working capital management, liquidity and case progression. After the reporting period this is expected to substantially improve liquidity.
After the reporting period, the company entered into a period of agreed forbearance in debt repayment with one of its secured creditors and also negotiated terms for a Time To Pay agreement with HMRC. By December 2022, the steps taken by the company had enhanced cash generation and cashflow.
The company maintained a surplus of net assets. After reviewing the company forecasts and projections to January 2024, and after taking independent advice, the Directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. It is therefore considered correct to adopt the going concern basis in preparing the financial statements.
Financial key performance indicators
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In addition to the review of turnover and operating profit, as disclosed earlier in this report, the directors use key performance indicators within the business to track critical factors. These include utilisation, “lock up” (debtors and work in progress), cases in progress, staging of cases, estimated settlement date, and estimated value to the claimant.
Given the straightforward nature of the company, the directors are of the opinion that disclosing further key performance indicators is not necessary for an understanding of the development, performance, or position of the practice.
This report was approved by the board and signed on its behalf.
Page 2
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NHLex Limited
Directors' Report
For the year ended 30 April 2022
The directors present their report and the financial statements for the year ended 30 April 2022.
Directors' responsibilities statement
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The directors are responsible for preparing the Strategic Report, the Directors' Report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland'. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing these financial statements, the directors are required to:
∙select suitable accounting policies for the Company's financial statements and then apply them consistently;
∙make judgements and accounting estimates that are reasonable and prudent;
∙prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements and other information included in Directors' Reports may differ from legislation in other jurisdictions.
The principal activity of the company is the provision of legal services.
The loss for the year, after taxation, amounted to £1,042,702 (2021 - profit £406,517).
During the year no dividends (2021 - none) were paid.
Page 3
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NHLex Limited
Directors' Report (continued)
For the year ended 30 April 2022
The directors who served during the year were:
T M Blackwell (appointed 1 September 2021)
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P Gower (appointed 1 May 2021)
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N D Elliott (resigned 1 September 2021)
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G A Chisholm (resigned 15 October 2021)
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K Chamberlain (resigned 1 July 2021)
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D R Patterson (resigned 26 April 2022)
W F Reid (resigned 24 April 2022)
Price risk, credit risk, liquidity risk and cash flow risk
The business' principal financial instruments comprise bank balances, trade debtors and trade creditors. The main purpose of these instruments is to finance business operations.
In respect of bank balances, liquidity risk is managed by maintaining a balance between the continuity of funding and flexibility through use of overdrafts at floating rates of interest. All the business’ cash balances are held in such a way that achieves a competitive rate of interest.
Trade debtors are managed in respect of credit and cash flow risk by regular monitoring of amounts outstanding for both time and credit limits. The amounts presented in the balance sheet are net of allowances for doubtful debtors.
Trade creditors' liquidity risk is managed by ensuring sufficient funds are available to meet amounts due.
Qualifying third party indemnity provisions
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The Company has made qualifying third party indemnity provisions for the benefit of its directors which remain in force at the date of this report.
Matters covered in the Strategic Report
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To comply with the Companies Act 2006, the Company provides in the Strategic Report, a review of the development and performance of the Company during the year, a description of the principal risks and uncertainties facing the Company and future developments.
Page 4
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NHLex Limited
Directors' Report (continued)
For the year ended 30 April 2022
Disclosure of information to auditor
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Each of the persons who are directors at the time when this Directors' Report is approved has confirmed that:
∙so far as the director is aware, there is no relevant audit information of which the Company's auditor is unaware, and
∙the director has taken all the steps that ought to have been taken as a director in order to be aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
Post balance sheet events
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Following the year end, the Company has entered into a Time To Pay arrangement with HMRC. Under this arrangement, the Company has paid a lump sum and committed to monthly repayments of £91,716 payable between December 2022 and October 2023.
Under section 487(2) of the Companies Act 2006, Kreston Reeves LLP will be deemed to have been reappointed as auditor 28 days after these financial statements were sent to members or 28 days after the latest date prescribed for filing the accounts with the registrar, whichever is earlier.
This report was approved by the board and signed on its behalf.
Page 5
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NHLex Limited
Independent Auditor's Report to the Members of NHLex Limited
We have audited the financial statements of NHLex Limited (the 'Company') for the year ended 30 April 2022, which comprise the Statement of Income and Retained Earnings, the Balance Sheet, the Statement of Cash Flows and the related notes, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland' (United Kingdom Generally Accepted Accounting Practice).
In our opinion the financial statements:
∙give a true and fair view of the state of the Company's affairs as at 30 April 2022 and of its loss for the year then ended;
∙have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
∙have been prepared in accordance with the requirements of the Companies Act 2006.
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the United Kingdom, including the Financial Reporting Council's Ethical Standard and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Emphasis of matter - amounts recoverable on long-term contracts
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We draw attention to the balance of £11,120,749 (2021 as restated - £11,578,526) for amounts recoverable on long term contracts, included within debtors. See note 16. This balance is arrived at in accordance with the revenue accounting policy, as revised, adopted by the company (see notes 2.4 and 26). The determination of the final balance is subject to significant estimates and judgements, as disclosed at note 3.
Our opinion is not modified in respect of this matter.
Material uncertainty related to going concern
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We draw attention to note 2.3 in the financial statements, which indicates that the Company is dealing with challenging trading conditions and management of cash flows. There is an inherent uncertainty around the timing of cash receipts due to the nature of the Company's principal activities.
In addition, the Company has breached financial covenants with its key finance provider. As at the date of this report, the Company remains in breach of those financial covenants. The Company continues to be reliant upon ongoing support from its finance providers.
These events and conditions, along with the other matters as set forth in note 2.3, indicate that a material uncertainty exists that may cast significant doubt on the Company's ability to continue as a going concern.
Our opinion is not modified in respect of this matter.
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Page 6
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NHLex Limited
Independent Auditor's Report to the Members of NHLex Limited (continued)
The other information comprises the information included in the Annual Report other than the financial statements and our Auditor's Report thereon. The directors are responsible for the other information contained within the Annual Report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinion on other matters prescribed by the Companies Act 2006
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In our opinion, based on the work undertaken in the course of the audit:
∙the information given in the Strategic Report and the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
∙the Strategic Report and the Directors' Report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
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In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic Report or the Directors' Report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
∙adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
∙the financial statements are not in agreement with the accounting records and returns; or
∙certain disclosures of directors' remuneration specified by law are not made; or
∙we have not received all the information and explanations we require for our audit.
Responsibilities of directors
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As explained more fully in the Directors' Responsibilities Statement set out on page 3, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.
Page 7
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NHLex Limited
Independent Auditor's Report to the Members of NHLex Limited (continued)
Auditor's responsibilities for the audit of the financial statements
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Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an Auditor's Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the Company and industry, and through discussion with the directors and other management (as required by auditing standards), we identified that the principal risks of non-compliance with laws and regulations related to Solicitors Regulation Authority, anti-bribery and employment law. We considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies Act 2006, taxation and pension legislation.
We communicated identified laws and regulations throughout our team and remained alert to any indications of non-compliance throughout the audit. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries to increase revenue or reduce expenditure, management bias in accounting estimates and judgemental areas of the financial statements such as the valuation, revenue and margin recognition on long-term contracts. Audit procedures performed by the engagement team included:
∙Discussions with management and assessment of known or suspected instances of non-compliance with laws and regulations and fraud, and review of the reports made by management; and
∙Assessment of identified fraud risk factors; and
∙Performing analytical procedures to identify any unusual or unexpected relationships, including related party transactions, that may indicate risks of material misstatement due to fraud; and
∙Confirmation of related parties with management, and review of transactions throughout the period to identify any previously undisclosed transactions with related parties outside the normal course of business; and
∙Performing analytical procedures with automated data analytics tools to identify any unusual or unexpected relationships, including related party transactions, that may indicate risks of material misstatement due to fraud; and
∙Reading minutes of meetings of those charged with governance and reviewing correspondence with relevant tax and regulatory authorities; and
∙Identifying and testing journal entries, in particular any manual entries made at the year end for financial statement preparation.
Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the financial statements or non-compliance with regulation. This risk increases the more that compliance with a law or regulation is removed from the events and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance. The risk is also greater regarding irregularities occurring due to fraud rather than error, as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation.
Page 8
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NHLex Limited
Independent Auditor's Report to the Members of NHLex Limited (continued)
As part of an audit in accordance with ISAs (UK), we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
∙Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
∙Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion of the effectiveness of the Company's internal control.
∙Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
∙Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our Auditor's Report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our Auditor's Report. However, future events or conditions may cause the Company to cease to continue as a going concern.
∙Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an Auditor's Report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.
Peter Manser FCA DChA (Senior Statutory Auditor)
for and on behalf of
Kreston Reeves LLP
Chartered Accountants
Statutory Auditor
Canterbury
30 January 2023
Page 9
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NHLex Limited
Statement of Income and Retained Earnings
For the year ended 30 April 2022
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Interest receivable and similar income
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Interest payable and similar expenses
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- change in accounting policy
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At the beginning of the year as restated
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(Loss)/profit for the year
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Retained earnings at the end of the year
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There were no recognised gains and losses for 2022 or 2021 other than those included in the statement of income and retained earnings.
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The notes on pages 13 to 32 form part of these financial statements.
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Page 10
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NHLex Limited
Registered number: 02287394
Balance Sheet
As at 30 April 2022
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Debtors: amounts falling due within one year
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Creditors: amounts falling due within one year
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Total assets less current liabilities
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Creditors: amounts falling due after more than one year
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Provisions for liabilities
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The financial statements were approved and authorised for issue by the board and were signed on its behalf by:
The notes on pages 13 to 32 form part of these financial statements.
Page 11
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NHLex Limited
Statement of Cash Flows
For the year ended 30 April 2022
Cash flows from operating activities
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(Loss)/profit for the financial year
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Depreciation of tangible assets
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Increase/(decrease) in creditors
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Increase/(decrease) in provisions
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Corporation tax received/(paid)
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Net cash generated from operating activities
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Cash flows from investing activities
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Purchase of tangible fixed assets
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Net cash from investing activities
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Cash flows from financing activities
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Net cash used in financing activities
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Net increase in cash and cash equivalents
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Cash and cash equivalents at beginning of year
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Cash and cash equivalents at the end of year
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Cash and cash equivalents at the end of year comprise:
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Page 12
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NHLex Limited
Notes to the Financial Statements
For the year ended 30 April 2022
NHLex Limited (“the company”) is a private company limited by shares and is incorporated in England with the registration number 02287394. The company operates from a number of locations across Southern England and Wales. The address of the registered office is 6 Drakes Meadow, Swindon, SN3 3LL.
The company’s principal activity is the provision of legal services. Further information on the activities of the company is included as part of the strategic report on pages 1 to 2.
2.Accounting policies
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Basis of preparation of financial statements
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The financial statements have been prepared under the historical cost convention unless otherwise specified within these accounting policies and in accordance with Financial Reporting Standard 102, the Financial Reporting Standard applicable in the UK and the Republic of Ireland and the Companies Act 2006.
These financial statements are presented in pounds sterling, which is also the currency of the primary economic environment in which the Company operates. Amounts are rounded to the nearest pound, unless stated otherwise.
The preparation of financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also requires management to exercise judgement in applying the Company's accounting policies (see note 3).
The following principal accounting policies have been applied:
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Exemption from preparing consolidated financial statements
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The Company is exempt from the requirement to prepare consolidated financial statements as all of its subsidiaries are required to be excluded from consolidation by section 402 of the Companies Act 2006.
These financial statements are therefore the Company’s separate financial statements, and present information about the Company as an individual undertaking and not about its Group.
Page 13
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NHLex Limited
Notes to the Financial Statements
For the year ended 30 April 2022
2.Accounting policies (continued)
At the end of the financial year now reported on the company undertook a detailed review of its financial position as income receipts were materially lower than forecast in the last 3 months before the reporting date. That had followed an accumulation of delays in case progression during the COVID pandemic resulting in delayed case conclusion and payment. Some of the delayed cases were of large value. Payment of material sums due had therefore been delayed. This continued into spring and early summer of 2022, placing pressure on liquidity. The company was supported throughout this period via active engagement with its bankers and secured creditors while the Company’s management implemented changes to practices to enhance working capital management, liquidity and case progression. After the reporting period this is expected to substantially improve liquidity.
After the reporting period, the company entered into a period of agreed forbearance in debt repayment with one of its secured creditors and also negotiated terms for a Time To Pay agreement with HMRC. By December 2022, the steps taken by the company had enhanced cash generation and cashflow.
The company maintained a surplus of net assets. After reviewing the company forecasts and projections to January 2024, and after taking independent advice, the Directors have a reasonable expectation that the company has adequate resources to continue in operational existence for the foreseeable future. It is therefore considered correct to adopt the going concern basis in preparing the financial statements.
Page 14
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NHLex Limited
Notes to the Financial Statements
For the year ended 30 April 2022
2.Accounting policies (continued)
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Revenue is measured as the fair value of the consideration received or receivable, excluding discounts, rebates, value added tax and other sales taxes. The following criteria must also be met before revenue is recognised:
Rendering of services
Revenue from a contract to provide services is recognised in the period in which the services are provided in accordance with the stage of completion of the contract when all of the following conditions are satisfied:
∙the amount of revenue can be measured reliably;
∙it is probable that the Company will receive the consideration due under the contract;
∙the stage of completion of the contract at the end of the reporting period can be measured reliably; and
∙the costs incurred and the costs to complete the contract can be measured reliably.
Turnover represents the fair value of services provided during the year on client assignments. Fair value reflects the amounts expected to be recoverable from clients based on the time spent, skills provided and expenses incurred, and excludes VAT.
Fee income is recognised as contract activity progresses and the right to consideration is secured, except where the final outcome cannot be assessed with reasonable certainty.
Fee income in respect of contingent fee assignments is recognised when recoverability of the fee income is considered probable, which may be in advance of final damages being agreed. In cases where income is not recognised, costs incurred up to the balance sheet date are carried forward as work in progress.
Unbilled fee income on individual assignments is included as amounts recoverable on contracts within debtors.
Disbursements are not included in income or expenses, but are netted off against each other.
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Operating leases: the Company as lessee
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Rentals paid under operating leases are charged to profit or loss on a straight-line basis over the lease term.
Benefits received and receivable as an incentive to sign an operating lease are recognised on a straight-line basis over the lease term, unless another systematic basis is representative of the time pattern of the lessee's benefit from the use of the leased asset.
Page 15
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NHLex Limited
Notes to the Financial Statements
For the year ended 30 April 2022
2.Accounting policies (continued)
Grants are accounted under the accruals model as permitted by FRS 102. Grants relating to expenditure on tangible fixed assets are credited to profit or loss at the same rate as the depreciation on the assets to which the grant relates. The deferred element of grants is included in creditors as deferred income.
Grants of a revenue nature are recognised in the Statement of Income and Retained Earnings in the same period as the related expenditure.
Interest income is recognised in profit or loss using the effective interest method.
Finance costs are charged to profit or loss over the term of the debt using the effective interest method so that the amount charged is at a constant rate on the carrying amount. Issue costs are initially recognised as a reduction in the proceeds of the associated capital instrument.
All borrowing costs are recognised in profit or loss in the year in which they are incurred.
Defined contribution pension plan
The Company operates a defined contribution plan for its employees. A defined contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity. Once the contributions have been paid the Company has no further payment obligations.
The contributions are recognised as an expense in profit or loss when they fall due. Amounts not paid are shown in accruals as a liability in the Balance Sheet. The assets of the plan are held separately from the Company in independently administered funds.
Page 16
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NHLex Limited
Notes to the Financial Statements
For the year ended 30 April 2022
2.Accounting policies (continued)
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Current and deferred taxation
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The tax expense for the year comprises current and deferred tax. Tax is recognised in profit or loss except that a charge attributable to an item of income and expense recognised as other comprehensive income or to an item recognised directly in equity is also recognised in other comprehensive income or directly in equity respectively.
The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the balance sheet date in the countries where the Company operates and generates income.
Deferred tax balances are recognised in respect of all timing differences that have originated but not reversed by the balance sheet date, except that:
∙The recognition of deferred tax assets is limited to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits; and
∙Any deferred tax balances are reversed if and when all conditions for retaining associated tax allowances have been met.
Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
Intangible assets are initially recognised at cost. After recognition, under the cost model, intangible assets are measured at cost less any accumulated amortisation and any accumulated impairment losses.
At each reporting date the company assesses whether there is any indication of impairment. If such indication exists, the recoverable amount of the asset is determined which is the higher of its fair value less costs to sell and its value in use. An impairment loss is recognised where the carrying amount exceeds the recoverable amount.
All intangible assets are considered to have a finite useful life. If a reliable estimate of the useful life cannot be made, the useful life shall not exceed ten years.
The estimated useful lives range as follows:
Goodwill relates to an acquisition made in 2013. The intangible assets have not been separately identified.
Page 17
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NHLex Limited
Notes to the Financial Statements
For the year ended 30 April 2022
2.Accounting policies (continued)
Tangible fixed assets under the cost model are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management.
At each reporting date the company assesses whether there is any indication of impairment. If such indication exists, the recoverable amount of the asset is determined which is the higher of its fair value less costs to sell and its value in use. An impairment loss is recognised where the carrying amount exceeds the recoverable amount.
The Company adds to the carrying amount of an item of fixed assets the cost of replacing part of such an item when that cost is incurred, if the replacement part is expected to provide incremental future benefits to the Company. The carrying amount of the replaced part is derecognised. Repairs and maintenance are charged to profit or loss during the period in which they are incurred.
Depreciation is charged so as to allocate the cost of assets less their residual value over their estimated useful lives, using the straight-line method.
Depreciation is provided on the following basis:
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Short-term leasehold improvements
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The assets' residual values, useful lives and depreciation methods are reviewed, and adjusted prospectively if appropriate, or if there is an indication of a significant change since the last reporting date.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in profit or loss.
Investments in subsidiaries are measured at cost less accumulated impairment.
Short-term debtors are measured at transaction price, less any impairment. Loans receivable are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest method, less any impairment.
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Cash and cash equivalents
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Cash is represented by cash in hand and deposits with financial institutions repayable without penalty on notice of not more than 24 hours. Cash equivalents are highly liquid investments that mature in no more than three months from the date of acquisition and that are readily convertible to known amounts of cash with insignificant risk of change in value.
In the Statement of Cash Flows, cash and cash equivalents are shown net of bank overdrafts that are repayable on demand and form an integral part of the Company's cash management.
Page 18
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NHLex Limited
Notes to the Financial Statements
For the year ended 30 April 2022
2.Accounting policies (continued)
Short-term creditors are measured at the transaction price. Other financial liabilities, including bank loans, are measured initially at fair value, net of transaction costs, and are measured subsequently at amortised cost using the effective interest method.
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Provisions for liabilities
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Provisions are made where an event has taken place that gives the Company a legal or constructive obligation that probably requires settlement by a transfer of economic benefit, and a reliable estimate can be made of the amount of the obligation.
Provisions are charged as an expense to profit or loss in the year that the Company becomes aware of the obligation, and are measured at the best estimate at the balance sheet date of the expenditure required to settle the obligation, taking into account relevant risks and uncertainties.
When payments are eventually made, they are charged to the provision carried in the Balance Sheet.
Page 19
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NHLex Limited
Notes to the Financial Statements
For the year ended 30 April 2022
2.Accounting policies (continued)
The Company only enters into basic financial instrument transactions that result in the recognition of financial assets and liabilities like trade and other debtors and creditors, loans from banks and other third parties, loans to related parties and investments in ordinary shares.
Debt instruments (other than those wholly repayable or receivable within one year), including loans and other accounts receivable and payable, are initially measured at present value of the future cash flows and subsequently at amortised cost using the effective interest method. Debt instruments that are payable or receivable within one year, typically trade debtors and creditors, are measured, initially and subsequently, at the undiscounted amount of the cash or other consideration expected to be paid or received. However, if the arrangements of a short-term instrument constitute a financing transaction, like the payment of a trade debt deferred beyond normal business terms or in case of an out-right short-term loan that is not at market rate, the financial asset or liability is measured, initially at the present value of future cash flows discounted at a market rate of interest for a similar debt instrument and subsequently at amortised cost, unless it qualifies as a loan from a director in the case of a small company, or a public benefit entity concessionary loan.
Financial assets that are measured at cost and amortised cost are assessed at the end of each reporting period for objective evidence of impairment. If objective evidence of impairment is found, an impairment loss is recognised in the Statement of Income and Retained Earnings.
For financial assets measured at amortised cost, the impairment loss is measured as the difference between an asset's carrying amount and the present value of estimated cash flows discounted at the asset's original effective interest rate. If a financial asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract.
For financial assets measured at cost less impairment, the impairment loss is measured as the difference between an asset's carrying amount and best estimate of the recoverable amount, which is an approximation of the amount that the Company would receive for the asset if it were to be sold at the balance sheet date.
Financial assets and liabilities are offset and the net amount reported in the Balance Sheet when there is an enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.
Page 20
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NHLex Limited
Notes to the Financial Statements
For the year ended 30 April 2022
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Judgements in applying accounting policies and key sources of estimation uncertainty
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In the application of the company's accounting policies, the directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods the revision affects both current and future periods.
Amounts recoverable on long term contracts
The Company has recognised amounts recoverable on long term contracts with a carrying amount of £11,120,749 (2021 - £11,578,526). See note 16.
The process of assessing amounts recoverable on contracts and work in progress requires various estimates and judgements to be made. Fee earners are required to record time at agreed values, but the ultimate recoverable value is often subject to the terms of Conditional Fee Agreements and the assessment by the court as to the sums reasonably payable by defendants and clients. The Directors' judgements formed in recognising the amounts recoverable on long term contracts in these accounts reflects the contractual rates agreed with clients, the likely rates recoverable by negotiation or assessment by the court for the time spent on client assignments, principles of reasonableness and proportionality. This is used as the basis for the amounts recoverable on long term contracts and work in progress. The overall judgment reflects the rates at which in the Directors' experience costs prove recoverable, advice of costs lawyers, case progression, admissions of liability or judgments on liability, offers of settlement and other criteria such as commercial recoverability or limits on defendant’s insurance.
In the current period, the court reviewed and increased ‘guideline rates’ for the first time in many years to reflect inflation in the price of legal services and costs. That change of guideline rates coupled with changes to the company’s practice over time in partial recovery of cost from clients are two factors that have also contributed to the company’s overall judgement on the sums recoverable under long term contracts in this period. For a fair comparison the amounts recoverable on contracts has also been restated for the year ended 30 April 2021.
In the current period, an uplift of £366,280 (2021 - £304,353) has been recognised as an enhancement to the sums recoverable. The directors consider this enhancement to be recoverable based on their assessment of current work-in-progress, historic recoverability and the billing policies now adopted by the Company.
This uplift was not recognised in the past due to lack of consistency over time in longer running /shorter running matters under the terms of engagement with clients and agreements for contributions by clients from damages where there has been a shortfall in costs recovery from defendants. The recognition of this uplift represents a change in accounting policy, described further at note 26.
The overall judgement formed by the company follows year end report of time on all assignments being circulated to fee earners to consider the key assumptions applied to each matter, specific or exceptional circumstances for matters and the recoverable/irrecoverable amounts. This estimate is itself a judgement on the future progression and outcome of a matters and may change depending on the final outcome for the client.
The estimate is sensitive to the fee earners assessment of recoverable value. A 5% reduction would result in a £243,278 reduction in amounts recoverable on long term contracts.
Changes in amounts recoverable on long term contracts are recorded in turnover.
Page 21
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NHLex Limited
Notes to the Financial Statements
For the year ended 30 April 2022
The whole of the turnover is attributable to the provision of legal services.
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All turnover arose within the United Kingdom.
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Government grants receivable
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The operating (loss)/profit is stated after charging:
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Operating lease expense - plant and machinery
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Operating lease expense - property
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During the year, the Company obtained the following services from the Company's auditor:
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Fees payable to the Company's auditor for the audit of the Company's financial statements
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Page 22
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NHLex Limited
Notes to the Financial Statements
For the year ended 30 April 2022
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Staff costs, including directors' remuneration, were as follows:
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Cost of defined contribution scheme
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The average monthly number of employees, including the directors, during the year was as follows:
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Administration and support
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Company contributions to defined contribution pension schemes
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During the year retirement benefits were accruing to 10 directors (2021 - 10) in respect of defined contribution pension schemes.
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The highest paid director received remuneration of £120,094 (2021 - £107,113).
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The value of the Company's contributions paid to a defined contribution pension scheme in respect of the highest paid director amounted to £18,000 (2021 - £16,067).
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Page 23
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NHLex Limited
Notes to the Financial Statements
For the year ended 30 April 2022
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Other interest receivable
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Interest payable and similar expenses
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Other loan interest payable
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Page 24
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NHLex Limited
Notes to the Financial Statements
For the year ended 30 April 2022
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Current tax on profits for the year
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Origination and reversal of timing differences
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Taxation on (loss)/profit on ordinary activities
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Factors affecting tax charge for the year
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The tax assessed for the year is higher than (2021 - higher than) the standard rate of corporation tax in the UK of 19% (2021 - 19%). The differences are explained below:
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(Loss)/profit on ordinary activities before tax
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(Loss)/profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 19% (2021 - 19%)
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Expenses not deductible for tax purposes
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Capital allowances for year in excess of depreciation
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Utilisation of tax losses
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Other differences leading to an increase (decrease) in the tax charge
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Total tax charge for the year
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Factors that may affect future tax charges
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The main rate of corporation tax will increase on 1 April 2023 to 25%, for companies with taxable profits above £250,000. Companies with taxable profits below £50,000 will continue to pay at 19%, and marginal relief will apply between these thresholds. This change forms part of The Finance Bill 2021, which was substantively enacted on 24 May 2021.
At the end of the reporting period, the company has unutilised tax losses of £NIL (2021 - £NIL) available for offset against future profits.
No deferred tax asset has been recognised due to the unpredictability of future profit streams.
Page 25
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NHLex Limited
Notes to the Financial Statements
For the year ended 30 April 2022
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Short-term leasehold improvements
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Charge for the year on owned assets
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Page 26
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NHLex Limited
Notes to the Financial Statements
For the year ended 30 April 2022
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Investments in subsidiary companies
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The following was a subsidiary undertaking of the Company:
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Hyphen Trust Corporation Limited
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6 Drakes Meadow, Swindon, United Kingdom, SN3 3LL
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Prepayments and accrued income
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Amounts recoverable on long-term contracts
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Trade debtors include £809,285 (2021 - £991,650) relating to unbilled disbursements.
Amounts recoverable on long-term contracts are disclosed as being due within one year, in accordance with the contractual terms. The subsequent billing and receipt of cash is dependent on matters being settled and costs agreed, which may take place in greater than one year.
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Cash and cash equivalents
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Page 27
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NHLex Limited
Notes to the Financial Statements
For the year ended 30 April 2022
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Creditors: Amounts falling due within one year
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Payments received on account
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Other taxation and social security
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Accruals and deferred income
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i) The Company has received a term loan facility agreement from HSBC Bank plc. Interest is payable on this loan at 3.5% per annum over the Bank of England base rate. The loan is repayable by instalments, ending March 2024. The loan is secured by way of fixed and floating charges over all assets of the Company.
ii) The Company has received a loan from Thrings LLP, an entity of which 9 Company directors are also members. Interest is payable on this loan. The loan is repayable on demand. The amount outstanding at the year-end is £2,025,624 (2021 - £1,982,217). The loan is secured by way of fixed and floating charges over all assets of the Company.
iii) The Company has entered into a receivables funding agreement with Doorway Capital Limited. The amount outstanding at the year-end is £1,338,682 (2021 - £481,257). The balance is secured by way of fixed and floating charges over all assets of the Company.
iv) The Company has received a loan from Funding Circle. Interest is payable on this loan at 4.4% per annum. The loan is repayable by instalments ending July 2023. The amount outstanding at the year-end is £147,913 (2021 - £250,000). The loan is unsecured.
The Company has received a further loan from Funding Circle. Interest is payable on this loan at 8.9% per annum. The loan is repayable by instalments ending October 2025. The amount outstanding at the year-end is £223,379 (2021 - £250,000). The loan is unsecured.
v) The Company has received a loan from White Oak. Interest is payable on this loan at 7.5% per annum. The loan is repayable by instalments ending April 2023. The amount outstanding at the year-end is £64,416 (2021 - £104,933). The loan is unsecured.
The Company has received a further loan from White Oak. Interest is payable on this loan at 6.0% per annum. The loan is repayable by instalments ending November 2022. The amount outstanding at the year-end is £152,166 (2021 - £250,000). The loan is unsecured.
The Company has received a further loan from White Oak. Interest is payable on this loan at 5.1% per annum. The loan is repayable by instalments ending November 2024. The amount outstanding at the year-end is £250,508 (2021 - £250,000). The loan is unsecured.
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Page 28
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NHLex Limited
Notes to the Financial Statements
For the year ended 30 April 2022
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Creditors: Amounts falling due within one year (continued)
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vi) The Company has received a loan from Close Brothers. Interest is payable on this loan at 3.15% per annum. The loan is repayable by instalments ending April 2023. The amount outstanding at the year-end is £157,047 (2021 - £NIL). The loan is unsecured.
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Creditors: Amounts falling due after more than one year
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Analysis of the maturity of loans is given below:
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Amounts falling due within one year
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Amounts falling due 1-2 years
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Amounts falling due 2-5 years
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Page 29
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NHLex Limited
Notes to the Financial Statements
For the year ended 30 April 2022
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Charged to profit or loss
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The deferred taxation balance is made up as follows:
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Accelerated capital allowances
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Provision has been made for claims against the Company, based on a review of potential claims and an assessment of any potential settlements that are considered likely as a result of these.
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Allotted, called up and fully paid
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16,000 (2021 - 16,000) Ordinary A shares of £0.10 each
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5,710 (2021 - 5,710) Ordinary B shares of £0.01 each
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6,750 (2021 - 6,750) Ordinary C shares of £0.01 each
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1,000 (2021 - 1,000) Ordinary D shares of £0.10 each
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Each class of shares carry separate rights to dividends, but in all other significant respects rank pari passu.
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Page 30
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NHLex Limited
Notes to the Financial Statements
For the year ended 30 April 2022
Profit and loss account
This reserve comprises all current and prior period retained profits and losses after deducting any distributions made to the company’s shareholders.
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Prior year adjustment - change in accounting policy
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The accounting policy for measurement of amounts recoverable under long term contracts has been voluntarily changed. An additional uplift is now included in the Directors estimate of amounts recoverable, to allow for the enhanced rates used for billing, when compared to the court guideline rates used for internal cost recording.
The Directors believe that the revised accounting policy provides more reliable and relevant information about the business, and the revenue which it expects to receive.
The change in accounting policy has been applied retrospectively for the year ended 30 April 2021. Due to the lack of consistent cost policy prior to this date, it is impracticable to determine the impact on periods ending prior to this.
As a result of this change in accounting policy:
∙Revenue has increased by £366,280 (2021 - £304,353)
∙Taxation expense has increased/(decreased) by £(69,593) (2021 - £57,827)
∙Amounts recoverable on long term contracts (Debtors) has increased by £366,280 (2021 - £304,353)
∙Retained earnings has increased by £296,687 (2021 - £246,526)
The Company operates a defined contributions pension scheme. The assets of the scheme are held separately from those of the Company in an independently administered fund. The pension cost charge represents contributions payable by the Company to the fund and amounted to £274,415 (2021 - £291,884). Contributions totalling £52,452 (2021 - £42,483) were payable to the fund at the balance sheet date and are included in creditors.
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NHLex Limited
Notes to the Financial Statements
For the year ended 30 April 2022
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Commitments under operating leases
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At 30 April 2022 the Company had future minimum lease payments due under non-cancellable operating leases for each of the following periods:
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Later than 1 year and not later than 5 years
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Related party transactions
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i) During the year Thrings LLP, an LLP in which 9 of the directors are also members, carried out services for the Company and cross charged expenditure to the Company totalling £301,000 (2021 - £473,004). At the balance sheet date the amount due to Thrings LLP was £1,986,144 (2021- £1,982,217).
ii) During the year, the Company's directors and key management personnel provided loans of £63,800 (2021 - £NIL) to the Company. Interest is payable at 6% per annum on these balances. The loans are repayable on demand.
Key Management Personnel Compensation
All directors and certain senior employees who have authority and responsibility for planning, directing and controlling the activities of the company/group are considered to be key management personnel. The compensation paid or payable to key management for employee services, including related social security contributions, was £1,385,858 (2021 - £1,239,877).
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Post balance sheet events
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Following the year end, the Company has entered into a Time To Pay arrangement with HMRC. Under this arrangement, the Company has paid a lump sum of £320,000 and committed to monthly repayments of £91,716 payable between December 2022 and October 2023.
The Company is controlled by the directors who own 81% of the called up share capital.
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