Hammonds takes overdrawings fight with ex-partners to High Court

Hammonds has followed through on its threat to sue a group of 14 partners who it alleges owe the firm money.

The firm filed a claim form in the Chancery Division of the High Court and simultaneously issued a press release informing the media of the claim.

“There’s going to be an almighty spat,” said one insider. “There’s an awful lot to this case. It’s not a simple dispute.”

Hammonds managing partner Peter Crossley first threatened legal action in the pages of The Lawyer (9 April) after the group of former partners failed to agree to repay overdrawings from the 2004-05 financial year.

One source said: “It’s surprising that they’re doing this in such a public manner. It’s very unusual when there’s a partnership dispute that anyone would want to make it public.”

Hammonds asked the partners for a total of £3m, which was drawn during the 2004-05 financial year, in addition to repayments for 2003-04. The firm proposed a five-year repayment plan for the 2003-04 money.

Last week’s press release read: “We have been working to reach an agreement with a number of our former partners to recover money due and owing to the firm. Regretfully we have been unable to resolve the matter with every such partner, and as a result we have today (11 June 2007) issued proceedings against 14 former partners.

“After a good number of months trying to reach an agreement, we now believe it is in the interests of all concerned that we bring the matter to a conclusion.”

Hammonds is being advised by Alan Steinfeld QC of 24 Old Buildings, while most of the partners are being advised by Addleshaw Goddard.

Hammonds has been threatening this action for some time, but the former partners say they will not back down. Addleshaws has already turned it over from partnership expert Richard Linsell to litigation partner Pietro Moreno.

The dispute has been rumbling for almost two years, since Hammonds called in PricewaterhouseCoopers (PwC) to replace the small two-partner accountancy firm it had previously used, to carry out a review of accounts. The review led to adjustments in 2004’s draft accounts.

The changes accounted for £8.1m after tax to be clawed back from partner profits, after the auditors discovered a revenue shortfall of £8m for the 2004 financial year.

One former partner said: “If one takes as correct that Hammonds overstated its profits by £8m in 2002-03, then it’s more than likely that it overstated profits in past years too. I’d like to see them open their books going back to 2000.”