BDO demands return of cash from ex-Halliwells partners
Former equity partners consider rebuffing administrators; those at Gateley to opt for mediation
A former Halliwells partner who shared a £20.4m windfall payment with 31 of his counterparts is preparing to fight administrator BDO’s demands that the sum be repaid.
As revealed by The Lawyer.com last week (17 June 2011), the failed firm’s administrators, Dermot Power and Shay Bannon at BDO, have written to the 32 former equity partners who pocketed the proceeds of a reverse premium deal struck with Manchester office landlord Allied London in 2005 and paid in 2007. The letter asks the former partners to repay the premium, plus interest and costs, to help fund the £192m owed to Halliwells’ unsecured creditors.
Julian Lewis, who gave up his position as Halliwells corporate head in May 2008 to join Fladgate as a partner, has sent an email to some of the former partners inviting them to band together to rebuff the demand.
It is not yet known whether any of the partners have responded to the email or whether any counsel have been instructed. However, former Halliwells partner Rod Waldie, who shared in the reverse premium and who is now head of Gateley’s Manchester office, confirmed that the group is considering mediation with the administrators.
“The letter invites mediation in relation to a transaction entered into more than six years ago and to decisions taken in the market at that time,” he said. “We’re dealing with the matter and considering the points raised before providing a composite response.”
Waldie joined Gateley when Halliwells collapsed along with 11 other equity partners who had benefited from the reverse premium. Former managing partner Ian Austin, former senior partner Alec Craig and former litigation partner Paul Thomas were still at Halliwells when it went into administration, but did not join Gateley. The other 20 being asked to repay their shares of the windfall had left the firm prior to its administration.
In 2005 Halliwells took on a 25-year lease on an office at 3 Hardman Square in Manchester’s commercial development Spinningfields. As an incentive for the firm to take the lease it was given part of the building’s freehold, which it then sold to Allied London in 2007.
Halliwells received £24.5m for the deal, £20.4m of which was distributed among the firm’s equity partners and the rest put back into the business.
For more details and comments, see:
Halliwells client money fiasco haunts new owners
Axed Halliwells lawyer’s Gateley action founders
Halliwells, the aftermath: HBJ and failed firm face court
Halliwells’ administrators seek funds to cover £200m of debts
Halliwells’ ex-managing partner: I gave my life to that practice
Dozens of small businesses suffer after Halliwells’ collapse
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Readers' comments (66)
Anonymous | 20-Jun-2011 6:39 pm
so the Tuscan palazzo, the Cumbrian lakeside retreat, the Spanish pool and the Aberdonian castle are up for sale are they?
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Anonymous | 20-Jun-2011 9:04 pm
I don't see why they should pay it back, or why they should have left the cash in the business. It's their business, and that business received a serious amount of cash it did not need at the time, so they extracted it, as they were entitled to do as the owners of the business. Unless it was illegal to extract the cash as they did (similar to restrictions on dividends only being payable out of distributable reserves at the time) the administrators will struggle because of limited liability and the limited scope of the clawback provisions in the insolvency act.
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don't tell Paul | 20-Jun-2011 9:12 pm
Paul Thomas joined Gately Wearing as a consultant but left when he found out that his fellow partners had all resigned from Halliwells LLP leaving him to carry the can on the St James's Court lease. Classy move by the former Halliwells partners. Tax advice anyone?
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A small fact | 20-Jun-2011 9:29 pm
The £20.4M was not distributed amongst its equity partners. The Fixed Share Members had one twentieth of a point which means they were also equity partners albeit on the same basis as somebody holding a few shares in a PLC. Do you lose your right to dividends, your right to notice of meetings and your right to vote if you only hold a handful of shares? Of course you don't but the Halliwells FSM's were not even told about the deal with the Landlord and certainly didn't receive a few measely grand despite the fact that they held equity. Giving up the .4M would have hurt the full members too much so they decided to try and keep it a secret.
Bet the FSM's are glad they didn't get any of it.
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Ashley Balls | 21-Jun-2011 0:26 am
If these circunstances were posed as part of examination question they would be considered fanciful and unbelievable. The real sadness is the firms who took on the ex-Halliwells partners. Was any digging done at all or were the hard questions simply not asked.
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dun soliciting | 21-Jun-2011 6:43 am
No doubt the new firms will arrange loans to these characters to repay the money, or pass the hat round? They won't want the embarrassment of this.
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Interested Observer | 21-Jun-2011 3:53 pm
Ashley Balls | 21-Jun-2011 0:26 am
If these circunstances were posed as part of examination question they would be considered fanciful and unbelievable. The real sadness is the firms who took on the ex-Halliwells partners. Was any digging done at all or were the hard questions simply not asked.
I suspect that the other firms were only interested at the time in how many files and clients they were acquiring. In any event, the partners would probably have denied all knowledge of what had gone. In many cases it would have been correct.
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Anonymous | 21-Jun-2011 5:03 pm
Interested Observer - None of the partners who went to BLG or Hill Dicks participated in the Spinningfields payout.
One of the main reasons the partnership split into different practices was that the partners who didn't participate in that awful transaction (and didn't know about it) could no longer be in partnership with their ex-colleagues once their duty to the LLP, clients and their staff had been carried out.
I'm sure a number of very good partners who are untainted by this transaction could have bailed (like many others both Spinningfields and Non-Spinningfields did) but their sense of right and wrong was clearly better tuned than others.
In answer to another question posted, the leaving spinningfields partners went to different firms, Fladgate, DWF, Kennedys, Pinsents etc etc.
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Anonymous | 21-Jun-2011 5:09 pm
in response to Ashley Balls
BLG have got a good department out of it, it fits into their existing service provision and will perform well if Kevin focuses and Damian delivers.
HD are dominant in the North West and will develop more strength on the back of the purchase of Halliwells Liverpool and bits of Halliwells Sheffield. There is history and friendship between the key Partners involved. It will work.
The HBJGW deal was a joke. No "due diligence" was done. It was the tragic consequences of greed (Dudley) and desperation (Manchester). Anyone with any sense wouldn't have agreed to it . But don't underestimate the Partners in Manchester. Austin, Thomas and Craig aside, there is a lot of good hardworking partners there.
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Anonymous | 21-Jun-2011 7:05 pm
Does anyone actually have specific details of the basis of the claim though? I agree the 5.50pm 20 June comment : how was this payout not legitimate? It was their business that had cash. Why can't they pay it out? They have have breached duty to the FSMs but it isn't the FSM making the claim as far as we can tell......
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