Halliwells – you ain’t seen nothing yet

As reported by The Lawyer today on the cover, four former ­Halliwells partners are being sued by St James’s Court (Manchester), the landlord of its former office on Brown Street in the city.

The landlord is demanding ­payment relating to outstanding rent on a 25-year lease signed before the firm moved into ­headquarters at Spinningfields at the end of 2007.

According to a ­senior property partner not associated with ­Halliwells, the defendants – Paul Thomas, Alec Craig, Matthew Wightman and Christopher Phillips – may be able to argue that the firm’s conversion to LLP status in 2004 exempted them from individual responsibility.

However, if they succeed in that defence it is unlikely to be the last of the mud-slinging.

Earlier this month (1 November) TheLawyer.com revealed that the failed firm’s joint administrators, Dermot Power and Shay Bannon at BDO, were considering legal action against equity partners in relation to repayment of ’overdrawn ­drawings’, unpaid capital contributions, breach of duty and breaches of the LLP agreement. In a letter to creditors, Power indicated that detailed letters before action would be sent out in respect of any claims in due course.

The news appeared to vindicate the views of many readers of TheLawyer.com, with one ­concluding that “the whole affair and downfall reflects the sheer greed of a few at theexpense of the majority, coupled with their complete incompetence at ­running a business and their ­arrogance.”

Another reader, picking up on the potential for legal action, ­posted: “I hear all the partners and ex-partners have received love ­letters from the administrator ­suggesting multiple claims will be brought against the partners. The actions of Austin, his decisions, his running of the firm, his emails, his much-loved wildly optimistic projections, are all being ­scrutinised. The nightmare just keeps getting worse.”

There were some dissenting voices, but they were few and far between. One posted: “I resent those commentators who take this as an opportunity to stick the knife in. How many of you truly know what’s going on with your firm’s finances? What’s happened at ­Halliwells is disastrous, but it ­wasn’t anything that the SRA could have influenced.”

In the 2 August issue, the firm’s former managing partner Ian Austin told The Lawyer in an ­exclusive interview, which has become the most-read and most commented upon story in The Lawyer.com’s ­history, that “we all bear responsibility” for the ­financial collapse of the firm.

The former chief cited in ­particular the departure of a team to Kennedys in December 2009 as “the straw that broke the camel’s back”, as it represented the loss of £4m-£5m in fee income.

But many readers attacked this position vigorously, with one asserting that “those who took the reverse premium, put other ­business interests ahead of the LLP’s interests, misled HMRC [HM Revenue & Customs], the partners and the staff bear ­responsibility here”.

This view was echoed by ­another reader, who argued that Austin’s pronouncements were “like the captain of the Titanic ­saying the passengers are also to blame for the ship’s sinking”.

Given the extent of the firm’s financial difficulties and the ­animosity between former ­partners the next few months could be an extremely litigious time.

Former fixed-share members (FSMs) have already told The Lawyer they are going to seek legal advice on whether they have the basis for a separate case against the equity partners. Some FSMs are citing a system of ­misinformation, which they believe can be supported by ­documents logged in the former firm’s computer system.

The crunch time for this will be post-January 2011, once the next tax bill is paid, as the FSMs want clarification from HMRC on what their terminal loss will be.

Like much of the Halliwells story, this centres around money. If the sums involved are big enough, the FSMs are more likely to take action. But, given that the vast majority of partners moved en masse to Barlow Lyde & Gilbert (BLG), HBJ Gateley Wareing, Hill Dickinson and Kennedys, the potential for internecine conflict is huge.

If that happens, even the ringfenced LLPs set up by the likes of BLG and HBJ to house ­incoming Halliwells partners would be insufficient to prevent the conflict spilling over into the rest of the firms concerned.