Halliwells could see its bank move in and seize its assets in the event of financial difficulties under the terms of a debenture agreement signed with Royal Bank of Scotland.
According to a debenture filed with Companies House at the end of last year the firm’s property, fixtures and fittings, LLP goodwill and IP are among the assets mortgaged under the deal. The debenture also gives the bank the power to appoint an administrator.
In return Halliwells is understood to have extended its lending facilities with the bank.
According to Addleshaw Goddard‘s head of professional practices and LLP Group Richard Linsell it is unusual for a law firm to use its assets as security against a loan, with partners usually taking on the risk.
He added: “A debenture is a very good lever for threatening the partners – if you’re able to appoint an administrative receiver over the business it improves your negotiating position.”
However, he added that the real value of such an arrangement to the bank was symbolic.
“What are the real assets of a professional services firm? Assets are WIP and goodwill and that gets devalued very quickly. The assets walk into work in the morning and go home at night. Professional service law firms are all about people,” he added.
Nick Carter-Pegg head of professional services at BDO Stoy Hayward agreed that it is unusual for a law firm to take such action, but added that it could become more common given the current economic situation.
“It’s more likely that these sorts of things may happen in this economic climate, but it appears to be the first case of a large firm having a debenture registered against it,” said Carter-Pegg.
He added: “This type of lending is very common for companies. Before the LLP came along, it wasn’t necessary because every partner would have been liable for the lending.”
A Halliwells spokesperson said: “Halliwells has a term loan. The loan is repayable in May 2011 and is secured by a debenture.
“Our accounts will be filed shortly and they will show the firm is in a strong position. The strength of our business lies in its diversity and our client base has never been stronger.”
The firm reorganised its borrowings in October “to ensure that our long term investments are being appropriately funded,” according to a firm spokesperson (TheLawyer.com, 23 October 2008).