Bank wins £120k ruling against former Halliwells partner

Topics: Insolvency & restructuring

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The High Court has ruled that a former partner at failed firm Halliwells should pay £120,000 to Royal Bank of Scotland over an unpaid debt.

Michael McCarthy had argued over the course of a five-day trial that his firm should have repaid a loan on his retirement before Manchester firm Halliwells entered administration in 2010.

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The insolvency expert had become a full member of the LLP in July 2007 and it was common ground that he was led to believe the firm had only ‘modest’ borrowings and that he knew nothing about financial arrangements surrounding the firm’s move to new premises in Spinningfields, Manchester.

In fact, the court heard, 32 members of the firm had ‘personally and handsomely profited’ from the move while taking out borrowings of £17.8m to finance fit-out costs.

In Royal Bank of Scotland v McCarthy, McCarthy told the High Court those members had been ‘greedy’ and he felt ‘contempt’ for them. The firm was wound up in January 2012.

Two years after joining, McCarthy was placed on 12 months’ notice requiring his compulsory retirement. The LLP agreed to pay directly to RBS the £120,000 standing to the credit of McCarthy’s capital account.

In the event, the LLP did not pay the bank any sum of money, and McCarthy alleged that RBS had actively prevented repayment.

He submitted that RBS ‘thwarted’ repayment obligations and had failed to call on the LLP to discharge its obligation under a letter of undertaking that Halliwells would repay McCarthy’s loan upon his ceasing to be a member.

RBS maintained there was no defence to what was a ‘simple debt claim’.

The bank said it was accepted by McCarthy he is liable under the professional practice loan scheme agreement, and that his case had changed ‘significantly’ over time.

Its lawyers argued there was strong evidence that the LLP would not have repaid McCarthy’s loan regardless, and that his reliance on the Contracts (Rights of Third Parties) Act 1999 was ‘misconceived’.

The Honourable Mr Justice Picken said McCarthy was an ‘honest’ and ‘straightforward’ witness who was willing to accept points that were not favourable to his claim.

But the judge disputed evidence of RBS refusing specific requests regarding McCarthy and the repayment of his loan.

Emails were ‘vague and imprecise’ and it was evident that McCarthy himself doubted whether consent to repay the loan was ever sought.

Picken said it was ultimately for the LLP to decide whether to repay McCarthy’s loan, and whether to do so by seeking RBS’s consent. He rejected the notion that RBS had ‘induced or procured’ any breach of contract by Halliwells, and that the firm had taken the decision to tell McCarthy the retirement deed was rescinded.

‘Without a request, RBS was never called upon to refuse its  consent,’ added Picken.

He rejected the various defences raised by McCarthy and ruled that RBS is entitled to judgment for the £120,000 claimed.

UPDATE 16:37 McCarthy’s case does not appear to have implications for other former Halliwells partners pursued in connection with the defunct firm’s demise. John Lord, a partner at TLT acting for some of them, said: 'This is a unique case as far as I am aware.  Nobody else has challenged any of the professional practice loan-providing banks, so there are no wider implications for the fixed-share members which we represent.  They continue to defend claims brought by HLLP's liquidator, Dermot Power.'

He added: 'I am aware of four other former FSMs being pursued by the PPL banks. I advised one of them and recommended that the claim be settled. In light of this judgment I am very pleased the advice was followed.'

 

Readers' comments (28)

  • This will hardly improve the image of the legal trade; as so often the behaviour of those at the top is indeed contemptible.

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  • Common sense = Spinningfields, prime location, city centre, = costly.........porky pies ?

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  • Bit harsh John.

    One can't comment on whether he practiced in a relevant legal area and in any event he instructed both counsel and solicitors- why shouldn't he rely on their advice? (assuming the advice wasn't that there was no hope).

    Possibly a little naive in;

    1. believing the LLP would honour the promise to pay RBS even having called on his forced retirement; and

    2. running a defence that reads to have been fairly ambitious at best.

    Hope RBS's costs weren't too high.

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  • One can only feel sympathy for Mr McCarthy. Without knowing the full facts and not having read the full judgment, one cannot comment on the adequacy of his arguments in defence. One would like to think that equity could have ridden to the rescue, e.g. with an estoppel argument. As the LLP no doubt cannot meet any claim for damages, one assumes that he will be investigating whether he has any recourse against those who controlled the LLP: whether any such claim would be merited, from distance one cannot say.

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  • - Anonymous 03.01 pm. My contempt was not for the unsuccessful McCarthy, but for the partners in Halliwells who treated him so badly, organising things so nicely for themselves and doing the dirty on one of their staff - who indeed suffered for his possible naivety.

    Sadly a common tale in modern Britain.

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  • I don't know about commonplace, but there are at least 2 such cases in the North West, partners profiting from hefty reverse premium on relocation, then busting the firm leaving carnage for those left, including (in one case) bankrupting salaried partners.
    If done knowingly, why is this not fraud?

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  • A very nasty result but does it beg questions?
    Mr McCarthy did whatever due diligence was available before becoming a partner or did he jump a gravy train?
    Was he inexperienced, naive, taken advantage of unfairly?
    He is described as an insolvency expert?
    Really,before or after he became involved?
    Good luck to him whatever.

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  • Presumably McCarthy must now sue the others who benefitted.

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  • I bet it didn't take much effort for the court to find in the BANKS favour

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  • On the very brief facts contained in this report it seems poor Mr Mcarthy relied on other members of Halliwells and his trust might well have been misplaced to some extent . i was deeply saddened when I read that James Chapman had been incorporated with Halliwells . Arthur McKenna and Fred Royle would turn in their graves

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