Halliwells: picking at the carcass
23 January 2012 | By Katy Dowell
7 April 2014
10 February 2014
27 March 2014
19 May 2014
15 July 2014
The battle to claw back monies from ex-equity partners has put creditors and former fixed-share partners at loggerheads.
This sale-and-leaseback agreement is at the heart of the battle raging between the firm’s partners. Tensions are mounting in the fight between the liquidators of Halliwells and the failed firm’s former equity partners as the battle to recover funds owed to creditors heats up.
Sources close to the case said a war of words had erupted between Addleshaw Goddard partner Alison Goldthorp, who has been instructed by BDO liquidators Dermot Power and Shay Bannon, and Peters & Peters partner Keith Oliver, who is representing 30 of the firm’s 32 former equity partners, over efforts to recoup £21m collected by the partners through a controversial reverse premium property deal.
This sale-and-leaseback agreement is at the heart of the battle raging between the firm’s partners.
It is widely believed that the deal ultimately led to the collapse of Halliwells back in June 2010. Having collected their cash from the property deal because it created tax efficiencies, many of those partners upped and left, leaving the firm with little cash (The Lawyer, 2 August 2010).
Halliwells’ former managing partner Ian Austin told The Lawyer (2 August 2010) that until the recession hit the firm had been experiencing growth of 16-17 per cent year-on-year. On top of that external consultants had predicted that the office would have full capacity within six to seven years of the deal being done.
It is easy to see why the partners thought the deal was a positive one; after all, they had just collected a nice cash bonus. They were not alone either: by 2008 these deals were becoming common among partnerships, although they were not without their risks.
In Bristol Bevan Brittan did a similar deal on its King’s Orchard office in 2007, only rather than distributing the cash among partners the firm put it back into the business.
his helped to raise substantially the firm’s partner profits, but the effect was temporary. Elevated profits are one thing, but when net profit fell by 36.5 per cent, from £9.6m in 2006-07 to £6.1m in 2007-08, and the equity partners saw their average payouts slide by 23 per cent to £180,000, something had to give.
In the end the firm’s partnership took the bold step of ousting its then chief executive Stuart Whitfield and restructuring to focus on the public sector (The Lawyer, 1 Septem-
ber 2008). While this may not be the most profitable of markets, the renewed focus gave the firm sustainability.
At Halliwells, however, the partners were in denial about the financial management of the firm, believing they could work through the down times. Yet by the end of 2009-10 it had seen £20m wiped from its turnover, with the firm taking in £67m in 2009-10 compared with £87m two years earlier.
This rapid unmanaged contraction sparked the exit of the firm’s insurance team, which yielded a revenue of between £4m and £5m annually, to Kennedys and ultimately led the firm to cease trading.
This is not to say there was not a decent business at the heart of the firm. So unexpected was the collapse of Halliwells that one senior clerk was in the Spinningfields office on that fateful day in June 2010 preparing to pitch for work from its chief litigator.
The rapid demise came with an added shock factor, setting Halliwells up for a lengthy legal battle. It has subsequently emerged that the fixed-share partners claimed to know little of what was going on within the equity partnership. No doubt this will be an issue for the mediator to decide at the March hearings.
Gimme gimme gimme
In June 2010 the administrators were called in to began carving up the carcass.
Rival firms looking to acquire decent businesses at reduced rates got on the phone to BDO’s Bannon and Power, the bank’s appointed administrators, hoping to cut deals.
Gateley, Hill Dickinson and Clyde & Co legacy firm Barlow Lyde & Gilbert (BLG) were in the frame to take the lion’s share.
“We were invited to a meeting in mid-June in which it was made pretty clear that Halliwells was in serious financial difficulty,” BLG chief executive David Jabbari told The Lawyer (26 July 2010). “The bank wasn’t likely to renew Halliwells’ overdraft facility and it was very likely the firm would go into administration.”
In the end the deal that was approved by the court saw Halliwells’ Manchester and London offices split mainly between BLG and Gateley, while Hill Dickinson took the failed firm’s 91-strong Liverpool office and the remainder of its Sheffield office that had not already agreed to go to Kennedys.
The deal was done speedily and walls were built by BLG and Gateley putting the Halliwells staff in separate LLPs in a bid to prevent its financial toxicity spreading.
Meanwhile, BDO began assessing how much was actually owed by the firm. It was discovered that it had sunk owing more than £190m, with £17.7m owed to its bank, RBS. The additional jolt was that the equity partners had collected £20.4m of the £24.5m earned from the sale-and-leaseback deal, and only 15 of the 32-strong group who cashed in were left at the firm when it went into meltdown.
It is these equity partners who are about to engage in mediation with the administrators. BDO informed the partners in June last year that it was seeking “repayment of those premiums from the individuals concerned, plus interest and costs” (The Lawyer, 17 June 2011).
This prompted the firm’s fixed-share partners to intensify their legal threats on grounds of misrepresentation.
In a fix
Irwin Mitchell partner Chris Jones has been instructed by 14 fixed-share partners to establish whether there is any grounds for a suit against the equity partnership. A letter sent by Jones in October stated that those who had accepted the premium had failed to act in good faith to the entire partnership.
In a statement Jones said: “We and they have spent a significant amount of time investigating the actions of the full members of the LLP in the period to the date of the administration order and those investigations are continuing.”
The pressure is further compounded by the fact that the same equity partners are in discussions with HM Revenue & Customs over Halliwells’ taxable profit for the year ending 31 April 2010. They are looking to offset losses made in the run-up to the formal administration date of 20 July 2011 against tax paid or owed on their earnings.
On top of that, last week BDO was approved by RBS as liquidators of the failed firm. The move will give Power and Bannon increased powers to enable them to pursue the equity partners under the terms of the Insolvency Act 1986, with particular reference to the sections on fraudulent trading and wrongful trading.
The legal maze that has sprung up around Halliwells is being navigated on one side by the fixed-share partners and on the other by the equity partnership. This goes to the core of what was rotten with the firm - the battle lines were drawn even before its administration, and both sides have dug in.