The financial black hole in the Greatminster Group uncovered by Insurance Times last week finally forced Lloyd's broker Miles Smith to call in the liquidators on Monday.

Parent company the Greatminster Group was unable to repay borrowings from Miles Smith, leading to the directors putting the company into voluntary liquidation. Director Paul Chainey said: "Following financial difficulties at the Greatminster Group, the directors had no choice but to put the company into creditors voluntary liquidation to protect the IBA creditors (insurers) and to look after the interests of our clients."

He insisted Miles Smith was trading profitably but was hit by the bad debt to Greatminster. "They (Greatminster) were unable to meet the inter-company debt to Miles Smith so we became technically insolvent," said Chainey.

To have continued trading would have broken Lloyd's rules and company regulations. PricewaterhouseCoopers were appointed receivers and HLB Kidsons appointed liquidators.

But the Miles Smith name will live on. The directors have used a further subsidiary, Miles Smith Reinsurance to buy the bulk of the trading book from the liquidator for an undisclosed sum. They have taken on 43 of the staff, about half the total.

Chainey said: "The liquidator has sold the book of business to an entity including the trading directors. Miles Smith Reinsurance will take over, pending a creditors meeting, but the new entity is trading from today." Chainey insisted the company, which will not be a Lloyd's broker had won the support of all its insurers. "We have not lost a single agency agreement," he said.

The old Miles Smith special risk division, covering Greek, Irish and UK corporate business and employing 18 people, has been sold separately to a new entity managed by Peter Carroll, run as part of Lloyd's broker Carroll & partners.

The old firm's international business and marine book will go into run-off but Chainey suggested the liquidator could allow Miles Smith to carry out its own run-off rather than place the business elsewhere.

The deals are not expected to be confirmed until June 9, giving the liquidators time to call a creditors meeting.

The market was awash with rumours that 20 or so staff had been made redundant but had also not been paid for a month. Chainey refused to comment, saying only: "They were made redundant by the liquidator in accordance with the statutory requirements."

Several calls by Insurance Times to the Greatminster Group went unreturned.