Managing Risk

The Board has ultimate responsibility for setting the Group’s risk appetite and for effective management of risk.  

An ongoing process has been established for identifying, evaluating and managing risks faced by the Group.  This comprises the maintenance of a detailed risk register by the management team of each division which is regularly reviewed and challenged by the Executive Directors. An annual assessment of key risks is performed by the Executive Directors and presented to the Board.  

All risks take into consideration the likelihood of the event occurring and the impact of that event. Once the risks have been assessed appropriate mitigation actions are determined for each key risk identified. The principal risks identified in the table below.

Description Category Risk
Credit exposure
The Group has a number of historic and ongoing arrangements with law firm customers, some of which involve deferred payments, and which create a credit risk in the event of their insolvency or a dispute.
Financial Cautious (6/12) The Group’s Financial risk appetite has reduced from balanced to cautious. The Group has processes to approve credit limits and monitor exposures and has adopted a more cautious approach when considering deferred terms for panel law firms. Contractual provisions such as set-off clauses are in place to mitigate the risk for material debts. Credit exposure is not material in the Critical Care division due to the dilution of risk between multiple customers.
Accuracy of business model assumptions (including impact of COVID-19)
The Group’s business model relies on several key assumptions which, if not delivered, have a material impact on financial performance and strategy. Some of these assumptions could be impacted by an elongation of the COVID-19 pandemic. These include assumptions relating to: 
  • Enquiry generation costs and volumes
  • Case processing performance
  • Small claims processing efficiency
  • Volume of critical care instructions
Financial Cautious (6/12)

Model assumptions are determined by management with oversight from Executive Directors and the Board.
Sensitivities are performed on the key assumptions. The model assumptions are scrutinised and compared to actual results on a regular basis. The 2021 budget factored in assumptions relating to an ongoing COVID-19 impact on instruction volumes and other key metrics across the Group.
Additional measures have been taken to de-risk assumptions by securing additional contractual guarantees from key partners.

Delivery of key strategic projects
The Group has several key strategic projects underway and a delay or failure to deliver any of these could have a material impact on its financial plan.
Transformation Balanced (7/12)

Oversight of strategic projects is provided by the Executive Director and the Board. Dedicated project management resource is in place to support delivery with a strong focus from the management teams. Progress is in line with plan on all the Group’s key strategic projects, including changes required to process small claims from 31 May 2021.

Regulatory Breaches
The Consumer Legal Services division operates in a highly regulated environment and handles high volumes of sensitive customer data including credit card information & medical data. The division also handles client money. The Group’s law firms are regulated by the Solicitors Regulation Authority. Breaches of regulations could result in regulatory action against those businesses, directors and compliance officers. Critical care is required to be audited by the CQC and any failings could create reputational damage and loss of customers.
Regulatory Cautious (4/12)

Both divisions employ dedicated compliance resources responsible for managing compliance issues and reporting directly to the Board. External legal advice is taken, including from leading counsel where appropriate. Advice is taken where new regulatory risks arise from changes to internal processes / structure or new legalisation / regulation. The Critical Care division employs a clinical governance team which reports monthly to divisional management.

Critical Care self-employed associate model
TheNew IR35 legislation requires careful interpretation to ensure arrangements do not breach tax laws, resulting in unexpected tax charges and fines. Loss of key self-employed associates and caseloads could create a revenue impact if associates are not replaced. A consequence of this could be disruption to the self-employed model, a lack of associates willing to provide specialist services and potentially lost revenues if services provided by associates cannot be replaced.
Financial Cautious (6/12)

The Board has taken external advice by a leading accountancy and tax firm and made the necessary status determinations for each associate. These decisions are supported by contractual terms, operational processes and working practices currently in place. Bush & Co regularly monitors compliance with these processes and has controls in place to ensure the risk of a breach of the legislation is low.

IT Infrastructure and Security
Many of the Group’s interactions with its customers are online and we are reliant on our IT systems to capture and protect valuable customer data obtained in the normal course of business. Theft, loss and misappropriation of digital assets and data could result in reputational damage and/or regulatory fines. The Group relies on a number key IT suppliers and its systems are increasingly automated creating an increased exposure to systems error.
IT, systems and data security Cautious (6/12)

The Group takes data security very seriously. The Board has undertaken a review of processes and controls relating to cyber security during 2021. The Group has robust policies and procedures to ensure it is compliant with the Data Protection Act 2018 and the General Data Protection Regulations (GDPR). Business Continuity plans are in place, the Group’s employees are provided with regular training and the cyber security controls are regularly stress tested.

Key Person Dependency
Unavailability or loss of key individuals could have a detrimental impact on business performance. Significant Intellectual property, relationships and experience is held by certain members of management. If they became unavailable there could be a short-term impact on operational performance and the progress of key projects.
& Culture
Balanced (8/12)

There is a succession plan in place covering all key individuals and no one person is responsible for any key relationship. Bonus schemes and share options are put in place to support retention of key employees and are regularly reviewed by the Renumeration Committee. There has been a significant focus on staff wellbeing in response to COVID-19

Working capital management
The Group is investing in working capital as it builds its book of personal injury claims in its ABS law firms. These claims can take up to 2–3 years to process and it is at the settlement point of each successful claim that cash is received. The Group is also investing in strategic change projects in both divisions in order to generate future growth. This is against the backdrop of reduced revenues and enhanced credit risk resulting from the COVID-19 pandemic, for an uncertain period of time. Whilst the Group generated £6.1m of FCF in 2020, if this were to change and the Group ran out of capital before the book of claims matures then it could fail to capitalise on the opportunity, miss its financial forecasts and the bank could demand repayment of the debt facility
Financial Cautious (6/12)

The Board closely monitors the use of capital and uses short and medium-term forecasts to plan future requirements. Day-today capital is provided through the Group’s revolving credit facility (RCF) with Yorkshire/ Clydesdale Bank and levels of utilisation and compliance with the debt covenants is reviewed on a monthly basis by the Executive Directors and reported to the Board. The Board have suspended dividend payments in order to reduce debt and thereby reduce this risk. Decisions around future dividends will be made with consideration to future capital requirements.