Categories:UK,West Midlands

Ex-client hits Challinors senior partner with bankruptcy petition

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  • Another law firm proving that they cannot run a business properly. If this was a small firm or a sole practioner the Sra would have intervened along time ago.

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  • I don't think the SRA would have intervened if the firm was smaller. I don't think that is the issue.

    What does surprise me is the levels of debt in these firms. £40m with Cobbetts. £11m with this firm.

    Could part of the problem be the age that people now make equity? Presumably having waited so long, there's a short term attitude that wasn't present when partners expected to be owners for 20 years. Now it is quite logical to saddle the firm with loans that don't need to be paid off until 5 years after you retire.

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  • There's really no need to intervene if everything is steadily sold off and client money is not at risk. However, I'm just looking at searching questions on our insurance proposal form which are designed to find out if we are intending to take anyone over, or take any chunks from failed firms. I suspect that insurers are nervy about anyone taking on bits of bust firms because they suspect that there will be a lot of claims tucked away, if only because the eye would have been taken off the ball if everything went into keeping the firm afloat.

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  • Yes, of course the SRA would have intervened if it was a small firm!

    There is a loan from a client, (that alone would have caused intervention in a small firm), there is bankruptcy petition, there are allegations of more "client loans"-a right old mess!

    The problem for the SRA is that it never anticipated large firms going belly up and was totally unprepared for it-despite all their bluster about being hot on compliance etc. Their tick box book doesn't cover this scenario.

    The SRA has chomped off far more than it chew. On this one they are handling it badly because they are paralysed with fear that they will criticised and proved incompetent.

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  • Anonymous 10.35 makes a very interesting point. At a time about 3 years ago, when our bank was telling us that they were no longer lending to provide working capital (despite it being fully secured on freehold buildings) other banks were cheerfully lending against work in progress books and something mysterious called the "timetable". This was despite the partners protecting themselves with several layers of limited liability. I suspect that banks were rushing away from lending to the traditional High Street model and embracing expansionist firms with "plans" too enthusiastically.

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  • Murky waters indeed,

    Did the firm advise the lenders to seek independent legal advice? If not then I cannot see how this can be considered proper.

    Did the partners seeking the loan give the putative lender 'full & frank' disclosure of the firm's financial position? If not then I fail to see how any material non disclosure does not raise the issue of the honesty and intergrity of those seeking the loan(s).

    I also fail to see how those charged with the management of the firm (let alone the COFA) can properly say that they have acted consistently with Principle 8.

    If a firm were unable to meet it's tax liabilities then I would question whether as a matter of accountancy principles (the caveat being that I am not an accountant / company lawyer) whether the firm was in effect 'bust' some time ago.

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  • HEADS YOU LOSE TAILS YOU LOSE

    The SRA are in an invidious position.

    The chose not to intervene in the Cobbetts pre-pack which burnt the creditors and they were criticised.

    Their response was to intervene in Blakemores causing massive intervention costs and destruction, again burning the creditors. They were criticised.

    So in Challinors they have chosen not to intervene and again they are criticised.

    In a nutshell the SRA are not resourced or capable of adding anything to a Law Firm collapse.

    And the old arguement about "client interest", well they argue this to justify what ever stance they chose to take. Compare their approach to Blakemores and Challinors, same arguement used to justify opposite approaches to an identical problem.

    Enough said...................

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  • I believe that the profession and the public have so lost faith in the SRA that the Law Society should call for a public enquiry into the actions (and inactions) of the SRA particularly in connection with the failure of Cobbetts, Atteys, Blakemores and Challinors. There are serious questions arising out of the SRAs conduct in all four firms. I pose the question "who is regulating the regulator ? or are they above the law!"

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  • 10.35am/11.30am. you need to understand the difference between accounting for firms on a going concern basis and in an insolvency situation. You need to remember that in an insolvency the amounts which would be due in future years (for example in a long term lease) become creditors in full at the point of insolvency (thereby creating a huge loss in the insolvency accounts if you understand double entry). Equally the assets of a company trading are generally worth a lot more in an insolvency situation, therefore its not just about the creditors/ debts, its the value of the net assets and how much someone is willing to pay when they know a firm is in distress.

    The fact that individual partners are able then get personal tax relief and huge tax refund from HMRC in an insolvency and for an LLP pre pack situation as result of this is one of the things the government needs to deal with. The fact remains those partners should be way down the list as creditors for their current and fixed capital but they get a significant chunk back in a tax refund. Problem for Challinors is they are a partnership, hence this story.

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  • Tom hits the nail on the head. Insolvency generally means being unable to meet ones obligations as they fall due. Now, if you can only pay your vat bill by tapping your clients for the money (and no one can convince me that this is mainstream) finance) then doesn't this mean that you are insolvent? And, aren't solicitors expected not to practise while insolvent? Some guidance from the SRA would be welcome.

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  • Further to the question of sinsolvency and trading while not a going concern (is this an offence under the 2006 CA?)

    There is also the question of the professional conduct of those involved?

    On what basis did the LLP/firm or partners/ members(s) seek the loans, and what were the terms?

    The old adage holds true; 'at what rate would you lend a leg of lamb to a starving dog'? If the lenders were given full disclosure then the rate would be penal and most unlikely that the credit be advanced (if I am wrong can the lenders please contact me to pay for cat's next grand cru burgundy binge, he'll put his 'bits' on the line as security)

    It is not credible to suggest the lender would have advanced such amounts if they had been given the full facts and the likely outcomes; particularly as it has been posited that the SRA were engaged at the times the loans were made.

    It therefore is not unreasonable to suggest that the conduct of those seeking the loans can properly be described as following below the standard to be expected of a solicitor; if not meeting the full definition in 'Tann' or 'Twinsectra' or what ever the test is these days.

    If the above is correct then I cannot see how the decision that there are no grounds for intervention can be anything other than irrational'.

    I cannot believe that a smaller firm which borrowed from clients to fund liabilities that should have been provided for by the hypothecation of VAT receipts (isn't this an obligation imposed by VAT regs) when the practice was going down the toilet wouldn't have been intervened into.

    The remaining credibility of the SRA is being fast eroded by this slow motion car crash.

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  • Haliwell Landau was an early northern casualty deciding to add a shiny new office block to their shiny new suits. Around that time one of their partners Geoffrey Shindler was president of STEP, that illustrious group, which just really goes to show that one should stick to the business one knows.... Not that they were much good at that eirther as I know from bitter experience.

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  • Anonymous | 15-Aug-2013 2:48 pm - "I believe that the profession and the public have so lost faith in the SRA that the Law Society should call for a public enquiry into the actions (and inactions) of the SRA particularly in connection with the failure of Cobbetts, Atteys, Blakemores and Challinors. There are serious questions arising out of the SRAs conduct in all four firms. I pose the question "who is regulating the regulator ? or are they above the law!"


    The Legal Services Board are "regulating the regulator" and they know as well as the SRA that it is not in the public interest for an intervention in firms such as Challinors.

    Who knows what the SRA may find if they start to delve deeper and how much may subsequently have to be paid from the Compensation Fund. The result of an intervention could see large increases in compensation fund contributions across the board and higher PII premiums which would have a knock on effect of restricting the public's access to justice.

    Then of course there is the global reputation of our legal profession to consider, if it were found that members of the profession were routinely failing to comply with the professional principles and in some cases, the law. The effect on GDP and the economy generally could be devastating.

    No, the SRA are well versed in understanding and protecting the public interest, they know exactly where it lies and talk of incompetency, bad management are very much misguided. Wilful blindness is the way to go.

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  • Any more news on Challinors? No, everything has gone very quiet. The staff, as I understand, do not have information about where they stand either - most distressing for such a big firm.

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  • I think the punch line is: Even the insolvency practitioners RSM Tenon have gone into Administration! Lord help the professionals.

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