The speed at which insurance firm Hextalls went into a prepacked administration last week (15 April) left the resultant firm having to make some quick decisions about its future.
When the original firm was put into administration it was immediately bought out by a group of partners, led by insurance partner Alex Padfield.
As The Lawyer went to press, the firm was still thrashing out the details of who exactly would be an owner of the new firm, with a number of partners having left in recent weeks. Financial director Stephen Akers walked out two weeks ago, following in the footsteps of corporate partner Nick Cockcroft and commercial partner Robert Brooks, who are launching a second London practice for Cramer Pelmont Solicitors. Former chairman and chief executive Matthew Clark left for partnership at Elborne Mitchell, while insurance giant Kennedys took a team of eight from the firm, including personal injury partners Joe McManus and Charles Martin.
Such a high number of exits from a firm that, at the end of the last financial year, had just 20 partners is clearly significant.
Whether Hextalls was struggling financially is unclear, as the firm has not filed its most recent accounts with Companies House.
Between 2006-07 and 2007-08 the firm’s turnover fell, although at 3.6 per cent the drop was not significant given what was happening in the rest of the market. At the end of 2006-07 turnover stood at £8.3m, while a year later it had fallen to £8m.
According to one former partner the departures were the result of the firm’s change of strategy when it embarked on a bold plan to diversify its practice in 2007.
Traditionally Hextalls had been an insurance firm focusing on litigation. The plan was to move into employment, sport and residential property and to ramp up insolvency.
“They moved too far away from their roots,” the former partner says. “The strategy got muddled and people had had enough – they decided to move on.”
The aim of the diversification plan was to hire a number of big-hitters to bring in some serious cash. This was a sound proposal in theory, but Hextalls was hampered by the economic downturn that saw its key clients change their demands just as the firm wanted to get more work from them.
The changes were put in place after a new management committee was elected following the departure of former senior partner Paul Connolly in June 2006. The partnership decided to abolish the senior partner position and opted instead for a nine-member executive board and chief executive position.
At this point all looked well, and Clark, the newly appointed chief executive, began looking for a suitable US merger partner. In April 2007 he told The Lawyer that Hextalls was in preliminary discussions with several US firms. “We probably want a firm with 50-60 partners in the US, but a rapidly growing firm would be attractive,” he said at the time.
A month later Dominic Lang became chief executive and Clark became non-executive chairman, succeeding head of employment Jane Liddington. No merger was ever completed with a US firm and Hextalls opted instead to focus on its domestic activities.
As its UK expansion plans moved ahead, Hextalls hired DMH Stallard insolvency head Richard Curtin and a month later created the position of head of property for Maria Guida, who joined from litigation boutique Edwin Coe, where she was a partner.
Not long after, the credit crunch began to bite and, according to a source close to the firm, money management became an issue.
“It was a good practice and the work was there, but the cash collection slowed right down,” the source says. “There was a large amount of overheads, a lot of initiatives getting off the ground and for several reasons they just weren’t working. So then the big billers began leaving.”
Another source says some of the partners who stayed with the firm under-performed. “There was one employment lawyer bringing in just £3,000 a month,” he says. “That’s not enough.”
Another former partner adds: “It wasn’t just one person doing that, there were several.”
In the end, following the departure of several partners (see box), the firm sought advice from partner Jonathan Koschland at London firm Judge Sykes Frixou and began the process of entering prepacked administration.
According to LG partner Steven Cottee, who has been instructed to work on the administration by Begbies Traynor administrator David Hudson, the decision to use a prepacked administration was taken because it could be executed quickly.
“It has to be quick because staff may want to leave; it could mean partners want to get out and clients then become dissatisfied and start to go,” explains Cottee.
On 30 March Hextalls Ltd was born and it was this vehicle that bought Hextalls LLP out of administration.
At this stage it is unclear which Hextalls LLP partners are partners in Hextall Ltd, but insurance partner Alex Padfield and litigation partner Matthew Hennessy-Gibbs are definitely part of the new outfit. According to one source close to the firm, Padfield will be vital to the reborn firm’s success.
“Padfield’s an inspirational individual and his practice has been a huge success for Hextalls. They need to keep hold of him to move the firm on,” the source insists.
In terms of financials, all outstanding work has been transferred to the new firm and debts owed to the original Hextalls will be collected by the new one.
“They have security over the debt, so they’ll collect the money,” says Cottee. “It’s far better for the firm to collect the debt. It prevents the insolvency process from getting off the ground and stops the Law Society from having to intervene.”
Creditors have been informed of the changes, as have clients, who, says Hennessy-Gibbs, have largely supported the firm. There have been no legal threats to the firm, although this cannot be ruled out entirely.
March 2008 – Harbottle & Lewis hires litigation partner Michael Clinch.
Druces & Attlee hires Mark Harden as a partner in its corporate and commercial team. He was head of corporate at Hextalls.
Maxwell Winward hires Hextalls’ head of employment Julian Cox as a partner in its employment team.
Goodman Derrick hires Hextalls partner Jonathan Hadyn-Williams as a consultant in its litigation practice.
Personal injury partners Joe McManus and Charles Martin take a team of eight to Kennedys.
Corporate partner Nick Cockcroft and commercial partner Robert Brooks leave the firm to join Cramer Pelmont.
Davenport Lyons recruits partners Ian Chappell and Adrian Bingham for its property team. Assistant Kirk Page is to join the duo.