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.'