Claims service company Motor & Legal Group was forced into receivership this week despite reaching an out-of-court settlement last month to keep a major contract with national broker Hill House Hammond.

Receivers Grant Thornton confirmed it had been appointed on Monday by the Bank of Scotland to wind up the firm. It said there was little prospect of a sale.

In February, the Manchester-based claims company launched an action in the High Court to maintain its contract with Hill House Hammond, which had already run for several years.

The two companies agreed out of court to extend the contract for another year until February 28 2001.

Les Ross of Grant Thornton said: "The company has recorded profits for a number of years, but has recently suffered financial problems following the re-negotiation of a major contract.

"Our prime concerns relate to the company's employees, the existing claims under management and the vehicle finance companies."

Motor & Legal marketing director Rayne Ward said the collapse was expected following the judgement.

She said: "Motor & Legal Group had been a cancer patient for some time, and although it seemed to be in remission, the end was inevitable."

Motor & Legal Group employed about 180 staff at its head office and another 90 in its national network. It has a 2,500-strong car fleet and is funded through a total of 25 finance companies.

Hill House Hammond spokeswoman Alex Lovesey said the out-of-court settlement was reached in their favour but doubted that it had led to Legal & Motor Group's demise.

She said:"Our contract was due to expire with them, but they disputed it on the grounds that they could continue to provide the service. We settled because at the time we were satisfied that Motor & Legal Group could still handle our claims. There are other factors for the company's collapse here other than our contract."

Lovesey added Hill House Hammond has already made provision to switch its claims handling in-house.

A 300-strong customer service unit will handle telephone enquiries and the broker will use the bodyshop repairer network of its parent company, Norwich Union.

Norman Insurance, which recently signed a contract with Motor & Legal Group, was unwilling to comment.

Les Ross of Grant Thornton doubted a sale of Motor & Legal was realistic.

He said: "My preliminary assessment is that there is a limited prospect of a sale of this business as a going concern.

"The best we can realistically hope for is an orderly wind-down of the business, which should ensure the maximum return for creditors."

He added: "Grant Thornton is invoking a contingency plan which aims to ensure that those claims currently being processed, estimated at 8,000, are managed in the most effective way possible.

"Finance companies are being advised."

Ian Griswold, chairman of Motor & Legal Group, was unavailable for comment.