Cobbetts set to go into administration
National firm Cobbetts has announced it is seeking protection from creditors as a buyer is sought for the business.
The Manchester-headquartered firm, which also has offices in Birmingham, London and Leeds, confirmed the move today blaming ‘difficult trading conditions’. It currently has 492 staff, of whom 74 are partners.
Discussions have begun with the Solicitors Regulation Authority on how to protect clients, with the regulator stating that an ‘orderly wind-down’ is the best solution.
In a statement, the firm said: ‘Having regard to the difficult trading conditions in the professional services sector we have reluctantly concluded that the appropriate course at this time is for the firm to obtain the protection of an interim statutory moratorium to enable a sale of the business and assets of the firm to be concluded in a short time frame.
‘We are also working closely with our regulator, the SRA, with all stakeholders and our professional advisers to achieve the best outcome for creditors, clients, employees and members. We remain confident that we will be able to provide a further positive update in the very near future.’
In calendar 2011, the most recent year for which LLP group accounts are available, operating profit fell from £11m to £10.6m, with turnover up slightly to £44.7m. Bank loans and overdrafts due within a year climbed from £591,000 to £2.7m, but bank loans due after more than one year fell from £9m to £6m.
The highest profit share for any member was £400,000, up from £292,500 in 2010.
Last month, the firm had said its half-year results showed a ‘steady ship’, with fee income of around £20m consistent with the previous year. Nick Carr, managing partner, said trading predictions for the next six months were ‘strong’ and he expected to meet financial targets by the year end.
In July, the firm promoted 24 members of staff across its four offices, including five to partner. It offered 80% of its newly-qualified solicitors permanent roles in 2012, a 7% increase on 2011.
The news comes almost a year to the day since a proposed merger between Cobbetts and national firm DWF was abandoned. Cobbetts is the biggest law firm in the UK to encounter financial trouble since regional firm Halliwells, with 700 fee-earners and 114 partners, disappeared from the market in 2010.
The SRA said it has been in talks with Cobbetts for ‘some time’ to protect clients in the context of the firm’s efforts to resolve its financial position. The talks have include guidance to achieve an orderly wind down of the firm and transfer client business when necessary.
Samantha Barrass, executive director, said: ‘The central focus for our work with Cobbetts has been and remains the protection of client interests, including client money, competent continuance of client business, effective client communication and resolution of any confidentiality and conflict of interest issues which may arise.
‘The primary responsibility for the protection of clients’ interests remains the firm's and, as relevant, the other key parties involved, but we have powers to intervene directly if clients' interests cannot be protected. The best solution for clients though is an orderly wind down, which we hope will be delivered in this case.’
Iain Miller, commercial dispute resolution partner at Bevan Brittan, is advising the SRA on the matter.
The extent of the firm's debts and its major creditors have not been revealed. Rumours that Cobbetts had encountered cashflow problems arising from a property deal could not be confirmed.
A spokesman for the Law Society said: 'The Society is ready to work with the firm's cooperation to attempt to find any displaced trainees new training contracts. Previous appeals of this nature have generated very positive responses.'
Comments
Cobbetts,how sad
Gearing? Too many partners to fee earners?
Easy to throw stones, let us be sympathetic to a well respected name.
How the mighty are fallen
This regrettably brings a smile to my face, Cobbetts in my dealings with them have been holier than thou. What a terrible shame for the staff who no doubt just followed Orders, as for the partnership, may this be a salutory lesson, there but for the grace of God go I.
Holier than thou
My dealings with Cobbetts too were unpleasant to say the least with a holier than thou attitude. I can't say I am crying in my beer for them.
However, what underlies their demise if that is the case, is the problem of sustainability of law firms.
When are we going to be able to compete in a sensible commercial market and have sensible forms of PII with sensible conditions meaning sensible fees.
When are we going to have Solicitors with their own PC's having their own liability and thus their own insurance (like the financial services industry has)? I for one, would employ dozens more Solicitors if that were the case.
Nothing to smile about
It's simply a reflection of exceptionally tough times. I feel desperately sorry for everyone at the firm, from the equity partners who stand to lose a fortune - just think of the capital calls, mortgages on homes, and so on - to the cleaning lady. I can't see that any rival is going to want the people as they are probably all over-staffed as it is.
And speaking as someone who has faced a similar event, only not on such a large scale, I can say that it's horrible. Worse than you can ever imagine.
Sincere best wishes to you all at Cobbetts.
Or cleaning man
Or cleaning man
It is tragic that firms of
It is tragic that firms of all sizes are struggling to survive but you can't help wondering if perhaps a cut in the "profit share" might have kept the firm alive .
It wouldn't surprise me if the average sole practitioner had to work for 8 - 10 yrs to draw an income of £400k. I doubt they work less hard or burden less responsibility.
The financials
Have to say, looking at those financials and if the forward looking statements were correct, it certainly seems odd that it has come to this. If one deal caused this then it strongly hints at mis-management on a grand scale.
Many businesses have temporary cash flow problems and I am surprised they could not come up with something a little less drastic. Going into administration seems to be the easy option for struggling companies nowadays and usually someone somewhere benefits from a fire sale. I am surprised this has happened to a national law firm though.
Have to agree with the last comment about profit share.
Their debt was 25% of gross
Their debt was 25% of gross income in a stagnent market. Interest payments on that debt would have been crippling. They had no hope of repaying the banks the debt plus interest so the partners decided that the firm was insolvent. It's fairly simply really.
The bank and any other creditors will certainly be asking the administrators to look at the partners' activities in the last couple of years as average drawings of £300k per annum in a highly leveraged firm in a stagnant market with zero room to expand except by acquiring other smaller firms in similar positions (as they did) seems very high.
It also goes to show that mergers with firms in poor financial health when your firm aint doing so good isn't perhaps such a good idea; you may well just be adding to the problems.
Cobbetts
The structure of the whole legal profession is not sustainable. Too much regulation of the wrong kind making the time spent on admin too much for the SP's. Large firms have built high cost basis as in the past large corporate clients or the LAB have been willing to pay. Well the party is over and unfortunately the legal profession as we know it is over too!
ABS's will eat up a lot of the low value private client work being far cheaper (at least in the short term) than SP's. ABS's will have big marketing budgets and brand names to entice customers (not clients).
The small to medium law firms will, on non reserved work, find increased competition from other suppliers to the market, for example accountants. Anyone can supply a shareholders agreement!
The larger law firms will find clients driving down the price in a similar manner that big corporates do with their other suppliers.
The CQS was the height of stupidity devaluing the solicitor qualification as the new scheme for magistrates court work.
There needs to be a radical rethink by the regulator on how the profession can be made profitable and any regulation should be viewed in value for money terms, the cost of regulation of the whole profession and the benefit to the client. Every client, one way or another, pays for the regulations in higher than necessary fees. If other suppliers to the open market have less regulatory costs they have an unfair competitive advantage.
There is considerably more pain to come!
Excellent analysis of the
Excellent analysis of the present situation!
Only two points to make;
firstly this analysis should have been some time ago and by our "professional body" the Law Society, and
secondly the regulator doesn't care about this, any more than it cares about the large number of students encouraged to "go into" law and who will struggle to see any return on the money they have spent.
Respectfully disagree
I cannot see how the structural failings of the legal profession can be laid at the doors of the regulators. We are a small firm that is regulated just like every other, and the cost of complying is a very small part of our overall costs. Frankly, it doesn't move the needle.
The issues that the law as a profession is facing is a direct result of the complete failure of its practitioners to move with the times and use better technology and process to deliver profitable services at a lower price point. It is not the role of the regulator to make the profession profitable and there is no inherent right to profitability for lawyers in the face of new competition.
The point was that the
The point was that the regulator is an added burden rather than the cause.
No, the fault is within us.
In an ideal economy
In an ideal economy - the LLP structure works well. Banks like to fund lawyers. In this economy - the system of withdrawing as much profit out of the business as they possibly can just doesnt fit the nature of todays competitive environment. These are the rainy days that should have been saved for.
The failure of firms like Cobbetts (and the next few no doubt this year) go some way to show that firms are imploding from within and not so much to external environmental pressures as everyone is suggesting.
This is just the natural universal entropy of the legal profession. A closed system - subject to the 2nd law of thermodynamics. There are lots of new entrants that have an interest in seeing the legal profession rot. There are those that are saying the bridges have burnt and of course are fanning the flames.
I dont think this is the end of the profession. This is the new beginnings. Anyone who says that lawyers dont have a future are clearly nuts.
The only way to prevent entropy is to create an 'open' system, continually inject new life and new ideas.
The current setup of the legal profession is more akin to a cartel. Its time for new ideas.
All very lofty
Meh, when you find the Higgs boson of the legal profession, please be sure to share it.
For now, I'll just stick to my Form Es and keep doing the lottery.
solicitors out of jobs from
solicitors out of jobs from cobbetts and the ones that will be made redundant come post april and the new graduates in the coming years willl result in ridiculous amounts of people applying for the sparse jobs already available. Jump the ship
Good News
This is a necessary market adjustment. The bubble of excessive PEP has been burst. New more equal law firm structures will emerge. Greed has its comeuppance. The circle of fortune turns.
Cobbetts
Really sad to read but the truth will out. Forever commoditising legal services and driving fees down will inevitably result in failures. Add to that the cost of regulation which is customer focused by paper pushers who have never run a Law firm and you have a recipe for disaster. The whole profession needs an overhaul and archaic practises modernised. Perhaps even a new representative body!! Now that is radical! Maybe we will survive but it needs brave lawyers to grasp the nettle.
All that's necessary for the
All that's necessary for the forces of evil to win in the world is for enough good men to do nothing.
Burke
Unregulated professions
Over the last few years I have noticed that there has been an increase in unregulated professionals. Former solicitors, insolvency practitioners and chartered accountants set themselves up and give advice mainlty to small commercial clients.
Presumably these unregulated professionals don't have insurance cover but clients seem happy to use them.
With the demise of SPs but with direct access to barristers I think that this is a trend.
Not nice for a firm to go -
Not nice for a firm to go - that's peoples lives being affected and the market now is so tough that the lawyers will find it hard to get work elsewhere.
However there's no reason to think that lawyers or large law firms should be immune to the same market forces that are closing high street businesses, construction companies or indeed small law firms.
Profit
Profit share is not necessarily the same as drawings, the Partners may have only drawn what the firm could afford rather than the £400K profit share.
The PEP race
The comment by Good News re the PEP race is correct. Law firms have stupidly allowed PEP to be almost the sole measure of worth (fuelled shamelessly by the so-called journalists at The Lawyer and, to a lesser extent, Legal Week).
Firms have been forced to massage (ie lie about) their PEP figures in an attempt to show they are 'succeeding' and to avoid the snide one-dimensional criticism heaped on them by Lawyer journos in their 20's who are only interested in bad news stories. Cobbetts is no exception - had honesty and realism been more to the forefront, those partners demanding their 'market worth' would have understood that that was far less than they withdrew (as it should be in many other firms) and the whole sorry saga could have been avoided
As for December's forward looking statement - it's a good job they weren't governed by SEC or similar rules!
A very good point. The Lawyer
A very good point.
The Lawyer and its ilk were the Hello magazine of law and firms just couldn't wait to get into its pages. Such firms were all image, no substance.
Cobbett's Demise
In 1992 I concluded the solicitor half of the legal profession was sleepwalking into inexorable terminal decline, and I therefore left private practice in that year - something I never regretted. My conclusion then has been fully borne out by events. And yet solicitors in small town England had then and still have now just enough clout to generate a series of significant earthquakes - if they (unanimously) work together. But therein lies the rub - they will never work together effectively - they are too busy competing for a diminishing pool of work at diminishing rates and aiding (soon to be) impoverished suckers to enter the profession
Cobbett's demse
Whilst not necessarily the cause of Cobbett's demise, too many are actually failing to carry out their professional obligations.
OFR has made it easier for firms to comply and survive but seeking sound outside advice when it comes to matters financial is an unseeingly peril from on high for so many solicitors who think they know more than the law and are above the law.
Try telling a solicitor that he doesn’t know what he is doing when it comes to accounts and the SRAARs.
They buy all singing all dancing software with bells and whistles paying extortionate prices with training on top instead of seeking the professional help they need to get themselves functioning properly at the outset from suitably qualified bookkeepers (or as they still like to call them "cashiers) and then break most of the SRAARs when the going gets tough.
And for any doubters to this theory - is it my imagination or have the number of names on the roll of dishonour pages increased over the past six months? How many times do you read “failed to keep properly written up accounts”?
Get that part right – and listen to an expert - and any firm will be on a sound footing for survival. Solicitors are, by nature, their own worst clients.
Stick to your own field
Yes, the old saying "a lawyer who acts for himself has a fool for a client" is so very true - you may be a brilliant lawyer but that does not make you a good businessman. Few lawyers are.
The level of debt seems to be
The level of debt seems to be very low per partner so one is left to wonder what has triggered this demise and why it could not have been averted if there is a worthwhile business at its heart. I cannot see lenders getting over anxious on the reported profile unless there is some irregularity or suppression of actual liabilities or enhancement of current performance. Perhaps the identity of any prospective acquisitor will reveal all?
I've been through the collapse of an old established and irreversibly doomed small to medium sized practice and suffered personal bankruptcy in consequence and it is not the end of the world, just the beginning of a rather different one! I will lose no sleep over others who suffer this fate as it is our own fault as a profession for allowing the inherent profitability of what we do best to diminish to a level where it is impossible to meet the aspirations of both clients and employees. The gravy train has long since hit the buffers but try telling that to overpaid staff and greedy fellow principals whose capacity for self deception is right up (or down) there with professional sportsmen, only slightly less so!
"Steady ship"
Here is the December 2012 statement:
http://www.cobbetts.com/News/HalfyearresultsshowasteadyshipatCobbetts
Can the Gazette clarify whether Cobbetts were already in talks with the SRA at the time of releasing that statement?
Who is Peter Felton?
Who is Peter Felton? Unsubstantiated subjective comments from someone with no apparent connection with the business add very little to the debate.
Who cares who he
Who cares who he is?
Obviously the comment was subjective-most are, because they are prompted by subjective experience-so what?
At least one other commenter agrees, others have quite the opposite view and found the firm ok to deal with. In other words a normal range of views-why is that a problem?
Censorhip
Are you all aware that the Law Society censors these posts.
I have criticised Hudson and Smithers and now all my posts are being blocked.
What a wonderful representative body we have.
There was me thinking dictators only existed in 3rd world countries.........silly me!
In case you are wondering yes
In case you are wondering yes the spelling mistake was deliberate to get round the censorship.
censorhip
It is utterly appalling that my comments too have also been censored for simply spelling out the truth. I too have made a spelling mistake in the hope that this gets through and actually stays on the comment list. If it does not the law society has proved itself to be the Orwellian crew I already consider it to be.
The level of debt seems to be
It's not necessarily the low level of debt which may have been the triggering factor. Of greater significance is what the level of debt (or capital) was 12 months earlier. A sharp plunge from a positive capital position to even a low level of net indebtedness could have triggered this event, particularly if the partners could see way of arresting the downhill direction- a likely outcome in the present climate.
Proud to have been on board for the ride. Thank you Cobbetts!
Is it not ironic that William Cobbett was a passionate defender of the press so that you can all now freely express your opinion on a great institution named after him by his two sons in honour of his name without really knowing what you are talking about? You forget, or probably do not know, that there remain 3 people within the Manchester office whose fathers were senior partners of the firm before them in years gone by. The majority of the staff who work there have done so for 20 years plus (on average). The current situation does not bear testimony to the firm, it's reputation nor the people that are still there, loyal to this 200+ year institution. Shame on you if you feel that you can readily throw stones for perhaps you ought to check that you do not dwell in a glass house or do not shield any sins of your own. Shame on you and let us all hope you do no find yourselves in a similar situation.