Imperial in new crisis over £6m

Insurer refuses to pay back loan to trouble-torn British finance group

Troubled UK finance group Imperial Consolidated has been hit by a further crisis because it cannot retrieve millions of pounds owed to it by Manchester-based insurer Claims Advance.

Sources close to both companies say Claims Advance is refusing to pay Imperial at least £6m and it seems unlikely this money will ever be returned. Claims Advance was formed in May 2000 as an insurance company offering people a way to bring personal-injury cases using legal advice.

Under these personal-injury cases, a solicitor used a loan from Imperial to pay partly for the medical fees identifying the extent of the injuries. Another part of the loan went on buying insurance from Claims Advance in case the litigation failed.

The scheme was designed, after the ending of legal aid for such claims in April 2000's Access to Justice Act, to allow people to try to get compensation without facing financial risk. If claimants won, they repaid the solicitor and the loan from their damages, but if they lost, the insurance was meant to pay the costs.

Various solicitors are thought to have given Claims Advance premiums to buy insurance for 10,000 cases using Imperial's money. Average premiums were £800. But 4,000 cases were cancelled by the solicitors after people dropped their claims and more were discontinued for other reasons.

But Claims Advance is thought to be using the wording of its policies to refuse to pay out at least £6m from these cases.

Claims Advance's managing director, Steve Kirby, refused to comment on the value or detail of the cases involving Imperial Consolidated, but denied the insurer has done anything wrong.

In a separate case, Claims Advance's former director, John Higney, pleaded guilty to 11 out of 19 charges of fraud in December 2000. The offences he admitted were committed before he was employed by Claims Advance and included false accounting and obtaining property by deception.

A spokesman for Imperial admitted Claims Advance had received money from Imperial's funds but said: "We have a long-standing relationship with them and are not aware of any problems."

The £6m was to have been repaid to Imperial's offshore funds, such as Alpha Plus, to fund its redemptions to investors. Last week's Independent on Sunday revealed that these funds had suspended redemption payments until November.

This led Allied Dunbar International, an offshore arms of Zurich Financial Services, to go to the Financial Services Authority and other regulators on the Isle of Man, its base, and Grenada with concerns about the suspension of repayments.

And another of Imperial Consolidated's subsidiaries, the Grenada-based Imperium Bank, has, in effect, been taken over by the local authorities while an investigation is made. The investigator, Marcus White, was last week granted a 15-day extension to his control, to 25 May, to complete his work.

The acting head of the Grenadian regulator, Sharon Griffith, said the previous deadline had been "too optimistic".