Professional services firms face rising legal risks from private credit failures

Mark Wilson and Jessica Wicker of Pinsent Masons were commenting as the growing number of high-profile failures and distress situations involving unregulated private credit lenders are seeing more professional services firms facing related legal claims and increased regulatory pressure.

Last month an intermediary of UK property lender provider Market Financial Solutions’ (MFS) launched a legal claim against solicitors it had instructed prior to the firm’s collapse in February following allegations of fraud and financial irregularities.

As first reported by The Lawyer, London Bridging Limited (LBL), which is also in administration, has instructed lawyers to bring a claim “against solicitors and barristers”. The law firm implicated, Sriharans

Solicitors, says it disputes the allegations and intends to defend the claim.

The MFS collapse triggered an enforcement investigation by the Financial Conduct Authority (FCA) and raised broader concerns about the risks posed both to consumers and markets by such unregulated lending, as well as potential failures in the underwriting process and standards for this type of corporate lending.

There have been several other high-profile failures by unregulated loans notes firms, including litigation funder Woodville Consultants Ltd, which entered administration in July. Godwin Capital also collapsed in June 2025, leaving thousands of retail investors facing potentially million-pound losses.

In July, the FCA pledged to increase scrutiny of unregulated lenders in this space – known as Annex 1 ⁠firms. Last month the regulator also announced it was placing restrictions on six Annex 1 firms amid concerns over their “anti-money laundering policies, controls and procedures while assessing their applications”.

Jessica Wicker, a corporate and financial litigation expert at Pinsent Masons, said the ongoing rise in the numbers of failing private credit and lending firms with huge deficits arising from fraud, financial scandals and corporate collapses illustrated the marked “contagion effect” of the MFS’ collapse.

As banks involved in the private credit funding cycle are coming under greater scrutiny, she said litigation risk could now be to spreading professional services firms that have acted for lenders or their intermediaries. “As insolvency and distress situations continue to rise following increased scrutiny by the UK regulators in relation to private credit lending cycles, it is a reminder that secondary disputes are likely to be generated,” she said. “Officeholders will often examine the conduct of advisers involved in earlier transactions, restructurings or litigation strategy.”

Wicker said professional services firms should also be aware of the growing risk of professional negligence claims being brought against them by insolvency practitioners looking to recover losses for creditors. “For professional advisers, careful scope management, documentation and ongoing risk assessment remain central to reducing exposure,” she added.

Law firms are advised to ensure they are mindful of the duties to their clients and the courts as well as their professional obligations. “Do not turn a blind eye to obvious red flags and anti-money laundering risks, allowing substantial investor monies to pass through the client account,” stressed Wicker.

Mark Wilson, an insolvency expert at Pinsent Masons, said there are additional risks for auditors, who need to exercise sound professional judgement across the audit process as a whole — asking whether the accounts present a coherent and credible picture. “This means applying appropriate professional scepticism, probing inconsistencies and deficits in the accounts, remaining alive to signs of fraud, and documenting the basis for their conclusions,” he said

Wilson added that professional risks do not end when an insolvency process begins, with officeholders scrutinising professional conduct in the run-up to failure. "Professionals who failed to escalate concerns — or who continued to act despite clear warning signs — may find themselves facing claims long after the event," he said.