BLG and HBJ create firewall for liabilities of Halliwells arrivals
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Incoming Halliwells staff ringfenced into sub-LLPs to protect against potential claims from legacy clients
Barlow Lyde & Gilbert (BLG) and HBJ Gateley Wareing have ringfenced former Halliwells staff in separate LLPs in a bid to limit their respective liabilities.
BLG and HBJ, which between them are taking over the majority of the assets of the failed firm, including 463 members of staff, wanted to hive off the incoming business because of the speed with which the deals were done. Separate LLPs would allow the acquiring firms to avoid beingdeemed liable for claims against Halliwells as successor practices.
Halliwells filed notice of intention to appoint an administrator on 24
June and the deals were completed by 20 July.
CEO at BLG David Jabbari explained: “The new team will initially be housed in a subsidiary LLP of our main LLP. This was done simply as a derisking measure given the speed with which this transaction had to be completed.”
Joint senior partner at HBJ Mike Ward said: “We’ll collapse the two LLPs as soon as the business is stabilised and we can have conversations over a relatively relaxed timescale, which wasn’t possible when the deal was done.”
In both cases an initial period will apply in which incoming partners will not be expected to contribute capital and they will be remunerated on a different basis to existing partners.
Around seven of the 19 partners joining BLG will become fixed-share members, meaning they technically receive a fixed share
of profits and contribute capital. However, as a result of their personal debt obligations, which are believed to total £10m according to Halliwells’ 2008-09 LLP accounts, the capital requirement will initially be waived. HBJ is imposing a 12-month moratorium.
It is understood that BLG will stand behind the capital loans that the partners bring with them. The firm has agreed with the partners a formula for a gradual repayment of the loans. HBJ will not be guaranteeing any outstanding obligations.
Hill Dickinson, which bought the Liverpool office and part of Sheffield, has not created a separate LLP. The firm had been in talks with Halliwells’ management to take over the entirety of the firm for several months prior to BLG and HBJ’s moves and had more time to undertake due diligence.
A Hill Dickinson spokesperson said the decision to absorb the 127 staff into the existing LLP was because the firm was “looking for integration into the business”. She would not comment on the capital requirements or remuneration of incoming partners, except to say that “the intricacies of the arrangements are confidential and the former Halliwells partners will be treated like any other partner in Hill Dickinson”.
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Readers' comments (15)
Anonymous | 26-Jul-2010 10:27 am
The name might have changed but the philosophy of get out of it if we can certainly hasnt
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Anonymous | 26-Jul-2010 11:14 am
What on earth is this business of putting your liabilities in a sub LLP and then collapsing it?
Is this recommended by the SRA?
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Anonymous | 26-Jul-2010 1:46 pm
Excellent move by HBJ and BLG.
This is M&A activity at its best! The LLP has every right to create a sub LLP in order to mitigate any potential claims from former Halliwell's suppliers/customers/angry staff.
It will also allow HBJ and BLG to review the Halliwells divisions such as real estate etc and decide who they should maintain and who should be made redundant. Unfortunately this will not be good news for those fomer Halliwells staff who will unfortunately face another round of 'restructuring redundancies' in the next 12 months.
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Anonymous | 26-Jul-2010 3:43 pm
How does the run-off insurance arrangement work in these circumstances? Do the erstwhile partners have to pay the run-off, are the new LLPs successor firms (in which case will there be run-off when they are collapsed) or what will happen? Can anyone explain this?
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Anonymous | 26-Jul-2010 3:56 pm
Why should they be able to avoid being a successor practice? The rules are clear that if the effect is that they are a successor practice then they take the liabilities. Yet another example of the one rule for the large firms and one for the rest of us.
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Anonymous | 26-Jul-2010 4:51 pm
This avoidance scheme cant work. They will be deemed successor practices under solicitor indemnity rules. Good try!
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Capt Mainwaring | 26-Jul-2010 9:19 pm
Which PI insurer would want to insure this rag-tag collection of flotsam and jetsam?
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Anonymous | 27-Jul-2010 0:06 am
The successor practice is clearly the new LLP which has its own indemnity insurance and therefore satisfies the criteria of the SRA that clients are covered on a “claims made basis” by either a successor practice or run off indemnity insurance.
I can see no scope in the definition of "successor practice" contained within 8.2 of MCT 2009 which would allow the SRA to "deem" HBJ to be the successor practice as they have not become the owner of Halliwells immediately following a transition and they have not put themselves out as so doing. They are merely a member of an LLP that has become the successor practice (and which has many other members in the shape of former Halliwells equity partners)
In the event that the LLP is merged into HBJ, HBJ will of course become a successor practice to both the LLP and via the LLP, Halliwells, but this will be after a couple of years when HBJ are confident about the dangers involved in this.
Don't forget the SRA have been physically present in Spinningfields since the first notice of intention to appoint was filed so they have given this a stamp of approval already and HBJ will have sought assurances from them that this approach would not be questioned before they committed to the deal. While this is maybe not be ideal it is better then the alternative, which would have seen no successor practice and an insolvent Halliwells unable to pay for run of insurance.
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Anonymous | 27-Jul-2010 0:14 am
these people are just bringing the profession into more deep disrepute and should not be allowed to get away with it but no doubt they will do
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Anonymous | 27-Jul-2010 0:16 am
Anonymous 3.56
The rules are clear, I suggest you actually read them (8.2 of MCT 2009) Should a law firm of any size wish to use a newly formed LLP to purchase the assets of a distressed law firm in tandem with some of the former equity partners in that law firm, they can do so. Whether it is economically viable for a small law firm to do so and fund two lots of indemnity insurance until the new LLP is profit making is another matter but you can hardly blame the SRA for simple economics of scale. It appears you have a bit of a chip on your shoulder, get over it or go work for a big firm.
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