The UK’s top 10 law firms have shaken off their hangover from the recession – but the chasing pack are still nursing sore heads, if recent numbers are anything to go by.

Allen & Overy’s half-year results chime with PwC’s recent findings from a comprehensive review of top 100 law firm finances. The magic circle firm, the first to report its half-year figures, posted revenues of £526m for the six months to 31 October, up 3% on the £511m it posted at the same time last year. Reassuringly for the firm, turnover improved across all its practice areas, suggesting that its substantial restructuring has succeeded.

As reported last week, PwC’s annual law firm survey 2010 found that mid-tier firms (numbers11-25) have continued to gobble up bank loans to support cashflow, while partner profits dipped slightly. At the same time, partner profits at top 10 firms continued a recovery begun in 2009, and at £917,000 on average, were more than double those of mid-tier firms.

The mid-tier looks set to fall further behind the top 10 in the coming year. As well as facing the challenge of improving profitability in competitive markets, mid-tier firms also face the burden of repaying these substantial debts: by siphoning off fee income, or by forcing partners to make contributions (which would probably, in a circular fashion, be financed by personal loans). And if partner profitability continues to drop off the pace of the top 10, retaining key staff will become an issue.

The advent of alternative business structures next October provides an interesting get-out: firms could find an external source to take on their debt, in return for an equity stake in their business. Could it be that some mid-tier firms are taking on bank capital in order to invest ahead of this date, and steal a march on their rivals?