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Friday, 17 August, 2001, 13:03 GMT 14:03 UK
Claims Direct had early revenue warning
Scene of a road accident
Personal injury insurance claims cannot be backdated
Claims Direct's founders were warned by government lawyers that a hoped-for source of revenue was extremely unlikely to materialise, the BBC's Watchdog programme has learned.

The company had hoped for a change in the law, which would have permitted the firm's clients to recover the cost of personal injury insurance.

The advice from the Lord Chancellor's office raises questions about how fully the company briefed potential investors about its future earnings in the prospectus produced for its stockmarket flotation.

An ambulance
Claims companies have been dubbed 'Ambulance chasers'

The BBC has learned that Claims Direct was warned on this issue a year ahead of the personal injury company's flotation on the London Stock Exchange.

In the flotation prospectus, Claims Direct said insurance premiums had been recovered in "a number of cases" out of court.

But it did not mention that it had been adviced that pending legislation was unlikely to allow to make premiums recoverable for 20,000 existing clients.

Management buy-out

A year after the stock market debut, the company's founders, Tony Sullman and Colin Poole, took the company private again in August 2001, following a boardroom battle with the independent directors, who initially rejected the bid.

Mr Sullman and Mr Poole pitched their management buy out at 10 pence per share, 95% less than the flotation price of 180p.

Claims Direct's share price - which once peaked at 360p - slumped after a BBC Watchdog programme featured allegations that some people winning compensation cases in court were seeing their damages virtually wiped out by Claims Direct's fees.

The troubled company has issued three profits warnings this year.

Into the red

In June 2001, it reported it a 20m loss for the full-year compared with a profit of 10m last year.

It also faces a threat to its business model from the Co-operative Insurance Society's (CIS) decision to offer its customers free legal protection against personal injury companies following a landmark legal judgement.

See also:

26 Jun 01 | Business
Claims Direct losses mount
15 Aug 01 | Business
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