Revealed: Unpaid tax bills forced Manches’ administration

Manches went into administration two weeks after HM Revenue & Customs (HMRC) issued a notice of action after the firm paid just £90,000 of a £715,000 tax bill, The Lawyer can reveal. 

Penningtons ended up paying £500,000 for the business despite originally setting out for a merger of equals (24 September 2013), unaware that the firm’s cash requirement for September was forecast to exceed its £6.4m overdraft facility.

The upfront payment, which excluded a debtors’ ledger of £6.2m, had been written down after administrators PricewaterhouseCoopers (PwC) established that £2.3m of Manches’ £4.7m work in progress (WIP) was more than 120 days old and consequently difficult to recover.

The information is contained within a 13-page Creditors Notice filed by PwC on 17 October and seen by The Lawyer. It reveals that Manches had a number of payment proposals rejected by HMRC this summer after it failed to pay a £715,000 VAT bill and £1.1m worth of individual partners’ personal tax liabilities.

”HMRC rejected two payment proposals by the LLP in relation to the partners’ unpaid tax liabilities that had been retained by the LLP but not paid over to HMRC when due,” the filing states.

It adds that HMRC negotiated individual time-to-pay arrangements with Manches’ 46 equity and fixed share partners because “the liability was their personal responsibility”.

Sources have told The Lawyer that tensions are mounting among the failed firm’s former equity partners over how to resolve the tax bill. 

Before the tax payments were due in July the firm had agreed to a £400,000 increase of its £6m overdraft, after it became clear that it would breach the facility. This allowed Manches to continue trading in the short term, with a view that it would address its cash flow difficulties before its facility was due for renewal at the end of September. 

However the firm’s cash requirement for the month was forecast to exceed its overdraft facility. “It became apparent that the LLP did not have sufficient headroom to settle critical payments such as rent, partner tax and annual renewal of its PII [professional indemnity insurance] cover,” continues the report. 

Manches eventually got an extension on its PII cover by one month, to 31 October, while the firm explored a potential sale. It explains why Penningtons’ acquistion of Manches (14 October 2014) moved so fast.

In response a spokesperson for the firm, now called Penningtons Manches, said:  ”While we cannot comment specifically on the circumstances that led up to the administration or the financial position of the legacy Manches partners, it should be made clear that Manches’ underlying business was and remains robust and successful.

”The challenging economic environment that all firms are dealing with has exerted different pressures on different businesses and in the case of Manches this resulted in short to medium-term cashflow problems. 

”Penningtons and Manches were in negotiations about merging before the issue of administration arose. The appeal to Penningtons has always been the excellent strategic fit between our respective core practice areas, sectors and clients putting us in a strong position for future growth. Penningtons has developed a reputation for its judicious financial stewardship and this will continue over the year ahead.”

Legacy Manches was best known for its work on high-profile divorce cases such as the 2008 settlement with Guy Ritchie and Madonna. It had been under pressure to reboot its financial growth since its failed 2009 ­merger talks with the now defunct Halliwells (5 July 2010) and at the end of the latest financial year its net profit fell to a 10-year low, dropping by 42 per cent from £3.7m to £2.15m.

Read more about the acquisition in Penningtons gets its Man(ches).

Manches administration: the facts


The amount the firm paid out of a £715,000 tax bill to HMRC, leaving £625,000 outstanding.


Individual partners’ personal tax liabilities of £1.1m were due on 31 July but, according to the filing, had not been paid over to HMRC when due.


Penningtons paid £500,000 for the business, taking on work in progress (WIP) and property.


Cost of intervention estimated by SRA’s solicitors could have exceeded £2.5m.


The joint administrators analysed Manches remaining £4.7m WIP and established that £2.3m was over 120 days old and therefore difficult to recover.


The firm approached its bank in May 2013 to extend its overdraft of £6m by another £0.4m. This allowed the LLP to continue trading in the short term.