Cobbetts: DWF deal dulls the pain

The second quarter of 2012/13 was the worst for the legal sector since 2010, and on 28 January Manchester firm Cobbetts became the first major UK firm to seek protection from creditors since Halliwells collapsed, also in 2010.

News of Cobbetts’ troubles came in what was a rough month for the commercial legal sector: Allen & Overy, DLA Piper and Eversheds all revealed cost-cutting reviews, but uncertainty over Cobbetts’ fate lasted only days. By the Thursday (31 January) - just three days after it had filed notice to appoint administrators in the Royal Courts of Justice - DWF had agreed to rescue the Manchester stalwart in a pre-pack deal that, in theory, will create a circa £147.5m firm.

DWF, also headquartered in Manchester, has been one of the market’s most acquisitive firms. On 18 January it combined with Fishburns after completing three mergers in 2012. It had even been in merger talks with Cobbetts before, until talks broke down in January 2012 when, publicly, the parties blamed an uncertain market.

In a statement DWF managing partner Andrew Leaitherland said of the pre-pack deal: “DWF’s plans to grow in a strategic, targeted way have been clearly set out and this move supports that goal. I am confident that the merging of the two firms would bring genuine benefits to both and, importantly, the joint client base. There are many synergies between the two firms in terms of the sectors in which we operate and this collaboration will further strengthen our existing business.”

The deal still has to be approved by the SRA, administrators KPMG and Cobbetts’ bank Lloyds, which is owed some £10m and signed a debenture over the firm earlier in January. As a result details are thin on the ground, but Leaitherland is known as a shrewd operator.

Irwin Mitchell restructuring partner Chris Jones, who is advising a group of former fixed-share partners from Halliwells in their legal battle with the firm’s administrators, says that if DWF is taking all of Cobbetts it is possible the firm has bought the firm’s work-in-progress and agreed to TUPE-transfer staff, but left Cobbetts’ debt, and its debtors, with the administrators.

“They may strike a deal with regard to debtors if they’re continuous clients,” adds Jones, “because then they wouldn’t want the administrators bashing them.”

One issue to keep an eye on will be Cobbetts’ partners partnership practice loans (PPLs), taken out with external lenders. When Halliwells went under the administrators waived the PPLs of partners transferring to Gateley (HBJ Gateley Waring as was) and Hill Dickinson as part of the deal.

The courts recognised this step as a necessary evil to get the deal done, even though partners who left as part of separate deals would be unfairly left on the hook for their loans. As is so often the case when law firms go under, banks are under pressure to get a deal done quickly to preserve value.

Indeed, this deal happened so quickly that commentators had barely begun to unravel why Cobbetts had failed in the first place. One thing is clear - the reaction was vastly different from that when Halliwells collapsed. Within hours of the Halliwells news breaking many people were commenting that the firm had got its just desserts.

One said: “Anyone who knows the firm or has worked there knows it is built on the utter greed of a select few. You reap what you sow. Good riddance.” Animosity towards Halliwells peaked when it emerged that some partners had pocketed a £20.4m reverse premium windfall following a deal with a new landlord.

In contrast, Cobbetts’ decision to call in administrators has been met with a sense of loss by the legal community.

One commentator says: “I was sorry to read this. I’d had a few commercial property transactions on with them over the years, and always found them good to deal with…”

While many lament the likely exit from the North West market of a stalwart like Cobbetts, few seem surprised.

“They never developed a commercial brand or became a serious player,” says a partner at a rival regional firm. “They were always a Manchester firm trying to break out of the straitjacket.”

Cobbetts was a full-service firm with a sterling reputation for property work and an enviable list of corporate clients in Manchester.

Provided the pre-pack deal is approved it must be expected that DWF will make staff cuts to rid itself of overlap. Still, for now, this looks like a good outcome for the firm.