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Former partners set to launch claim over financial results as new auditor PwC revises profit for 2004 draft accounts
Former partners of Hammonds are preparing to sue the firm as it also emerges that auditors have discovered a revenue shortfall of £8m for the 2004 financial year.
A review of accounts carried out by the firm's new auditor Pricewaterhouse-Coopers has led to adjustments in 2004's draft accounts. Proposed changes in accounting policies, such as averaging out cost over time, have been abandoned.
The changes account for £8.1m after tax, to be clawed back from partner profits in the future.
A widescale reorganisation of the firm, including a slash in staff and fee-earner numbers, means Hammonds also hopes to save £10m this year in costs.
The Lawyer also understands that a group of ex-Hammonds partners has instructed leading counsel with a view to launching a claim over the distribution of 2005's profits.
In February, The Lawyer revealed that the firm is asking former and current equity partners for repayment of overdrawings. The new £8.1m charge is in addition to this and will be repaid over a period of time.
Managing partner Peter Crossley said he could not comment on potential litigation, saying: "All we've done is act in good faith and in the best interests of the business and on the advice of PricewaterhouseCoopers."
Hammonds reported a 2005 net profit of £17.8m after an exceptional reorganisation charge of £1.6m. According to finance director Laurence Campbell, the average profit per equity partner figure of £204,000 includes the firm's £35,000 London weighting and partner benefits such as cars, as well as taking account of the profitable Italian office.
Leeds was the only one of Hammonds' four UK offices to hit budget in 2005, as UK revenue performance dropped 2.5 per cent. Several practice areas also performed poorly, with construction the hardest hit after a series of partner departures. The department's revenue was 27 per cent down on 2004.
Corporate finance was the only practice area to see a significant fee income rise, up 14 per cent, and the international offices improved by 26.2 per cent.
Crossley said the firm was ahead of budget for the year so far and that he was optimistic for the future.