Recession still casts its shadow

Katie Dowell

Remember the depths of the economic gloom back in 2009, when barely a week went by without a law firm announcing big redundancies? Merger activity plummeted, the real estate market ground to a halt and, while there were plenty of predictions of a slew of disputes, there just wasn’t the money around to pay the litigators. 

Looking back, it’s a wonder there were not more calamities such as Halliwells, although the collapse of a law firm doesn’t always happen overnight.

Cashflow – or lack of it – can make or break a firm. You have a pot of money to pay for staff, property, insurance and tax, but if the money stops coming in the writing is on the wall.

This was the stark reality faced by West End firm Manches, once a private client big-hitter with a heavyweight family team.

Manches’ slide into administration, the grim details of which are revealed on today, provides some salutary lessons for law firm management. For Penningtons, which acquired Manches when it went into administration earlier this month, it proved to be an opportune buy – a cool £500k for the entire work-in-progress.

Some facts behind the headlines – between 2006 and 2009 Manches saw six department heads quit, including litigation head Clive Zietman, now to be found raking in the big bucks for Stewarts Law. Revenues started to spiral downwards. In response, partners were locked in and drawings reduced, a new chief executive appointed (she left a little less than two years
later) and a plan to drive back to profitability put in gear. 

Put simply, the plan that didn’t work and the toxic mix that forced the firm to call in the administrators and sell up was stirred by an unpaid tax bill, that huge overdraft and the looming prospect of the PII renewal deadline.

With more than 150 firms still trying to find insurance this is unlikely to be the last time The Lawyer reports such a story. The effects of the recession have only just begun to be felt by the profession.