Halliwells on the brink of administration
The economic meltdown is set to claim its biggest casualty yet in the legal sector, with Halliwells hovering on the brink of administration.
Talks are under way today to transfer the bulk of the top 50 firm’s assets to Liverpool-based Hill Dickinson, though there is no guarantee these will succeed.
Other firms interested in acquiring parts of Spinningfields, Manchester-headquartered Halliwells are in contact with the firm, with Barlow Lyde & Gilbert reported to be interested in the Manchester-based insurance practice.
Halliwells employs some 700 fee-earners, including about 114 partners, at offices in Manchester, Liverpool, Sheffield and London. The firm reported a slight fall in income to £83m in 2009, with profit per equity partner down 47% on the previous year at £226,000.
Halliwells applied last week for court approval to appoint an administrator, triggering a moratorium on its liabilities and providing a window for talks on the future of the business. The firm is expected to be dissolved when these talks have concluded.
A spokesman for the Solicitors Regulation Authority said the regulator is in daily contact with the firm. The regulator is making preparations to intervene in all or part of the business, depending on the outcome of negotiations with potential acquirers.
Halliwells' predicament has been blamed on high property costs exacerbated by the economic climate, which has hit profitability. The firm spent millions of pounds relocating to the Spinningfields site in 2007.
Shay Bannon, head of business restructuring at BDO, which is advising Halliwells, said: ‘It is well known that the firm assumed substantial property obligations in recent years which have significantly increased operating costs. This, together with the slowdown in transactional activity in the current economic climate, has put pressure on cashflow.
‘Halliwells has a great reputation and a highly skilled and committed workforce. We are in discussions with several other law firms regarding a sale of the Halliwells business. The moratorium is in place while we work with Halliwells to conclude the sale of the business.’
Significant job losses appear inevitable regardless of the outcome of negotiations, with junior lawyers and support staff likely to be most at risk.
Halliwells' latest accounts, filed in February 2010, show that the firm ended the 2009 financial year with an £18m bank loan due to be repaid to Royal Bank of Scotland in 2011. The firm later renegotiated its banking facilities with RBS to include a £2m overdraft renewable in January 2011, a £5m term loan repayable by April 2013 and a revolving credit facility repayable in April 2013.
Comments
Initial thoughts on the Halliwells Administration
On a personal level, we are sad for the people affected by this at Halliwells. It was a well established Manchester firm and we have worked closely with them over the years.
On a structural level, Halliwells' demise throws up some interesting partnership issues. Firstly, it shows that the recession can affect the legal market as much as any other. It's too early to know exactly what happened at Halliwells, but it seems they took on too many costs without sufficient income to cover them. In any market over-expansion at the wrong stage of the cycle can be catastrophic. Partners in firms need to ensure that their business model is sound and that their drawings do not exceed their earnings. Some of the vitriolic comments posted on blogs following the announcement, coupled with some of the well publicised departures from Halliwells, may also point to issues surrounding the culture and values of the firm.
Hill Dickinson and BLG are rumoured to be interested in acquiring Halliwells' assets. The Spinningfields lease may be regarded as more of a liability than an asset. The TUPE costs of transferring staff, especially when corporate departments are not fully occupied, may also not appeal. That leaves Work in Progress, although Halliwells' clients may not be rushing to pay any outstanding bills.
The partners (or members as we should properly call them) will be pleased Halliwells is an LLP although we don't know whether RBS took any personal guarantees from members when they refinanced the business.
This is a sad story for Halliwells, the people who work there and Manchester's legal sector, but it seems that Halliwells' problems relate more to business strategy and management rather than anything to do with the legal sector. More will no doubt come to light in the next few months.
Mark Briegal
Partner
Ralli
reply to Mark Briegal
A very well written and well thought out analysis of the situation here. Something of reflection of the fact that the legal profession is becoming totally obsessed with money and is paying too little regard to principals which governed it whilst i was in practice
The SRA is standing by to
The SRA is standing by to intervene!!!!!!!!!!!!!!!!!!!!!!
What is going on here? They usually only intervene if client's money is at risk. Even if there are arguments over transferring staff to other firms, there's usually no problem in transferring the work and client monies to other solicitors.
Halliwells' in Administration
I have to agree with Mark's assessment in many respects but particularly the culture/value and business strategy and management observations.
SOS
I am saddened to hear the loss of a highly prestigious law firm in Manchester and the loss of jobs as a result.
I am surprised to note that not enough is being done to rescue the firm from totally collapsing or being sold on to another interested party. Undoubtedly the assets will be sold on at a loss much to the demise of the long-standing loyal workforce.
Every avenue should be explored in safeguarding the firm from total ruins and securing the jobs of the 700+ workforce and the sale as last and ultimate resort!
The need for intervention is
The need for intervention is most likely to arise in relation to the administration and subsequent liquidation of the LLP post pre-pack sale by the administrator, if Hill Dicks et al seek to take all the wip they run the risk of bringing the staff they don't want across under TUPE (although this is far from clear after Oakland, it is still a risk) so it is likely that some staff, some wip and ergo some live matters within the less desirable / profitable parts of the LLP will be left in the LLP.
It is also likely that there will be no funds left for the administrator / liquidator to pay the remaining staff and no work will be carried out on these files without them being transferred to another law firm, possibly (although by no means certainly) through an intervention.
Does this make the LLP a risky business model?
There's a comment on the Manchester Evening News website saying that it's been reported that Halliwells were paid a huge reverse premium to take on the lease of their new premises at an ultra high rent. The bulk of this was paid out to the partners and only about a quarter was kept in the business. The practice was then running on loans and overdrafts equivalent to the amount taken out.
If correct, this means that the capital had been stripped out by the Limited Liability partners leaving the landlords and the banks to carry the risk. I wonder if banks will now be much more cautious with LLPs as they will see a risk that partners will simply take the cash out and leave banks with the debts as they take their work over to other firms? The opportunities for looting the firm and leaving a debt ridden remnant for the SRA to tidy up at our expense are limitless.
Arrogance
Haliwells were always an accident waiting to happen. This is in part due to their ridiculous arrogance which spread through the firm from top to bottom, including their business development department who appeared to have lost all touch with reality. There are likely to be other large firms at risk especially one that has relatively recently acquired expensive new premises in Leeds and Liverpool. Whether that firm, which has expanded rapidly in the last few years, will survive remains to be seen but they may be in trouble if they too continue to exude the type of arrogance at managerial level that was previously associated with Halliwells.
Leeds 1... Liverpool 0!
It happened in Leeds at the height of the housing crash resulting in the end of Fox Hayes LLP - Leeds.
Coupled with the £1m fine imposed by the 'INCOMPETENT EYES WIDE SHUT - FSA'
FSA
I reccomend this person to Private Eye , where the FSA is aptly described as the Fundamentally Supine Authority and accountants are labelled as bean counters - or should it be been counters ?