Rest in pieces

Reckless ambition, inept management and greed: a case study in how not to run a law firm

In February 2009, this magazine published a cover feature charting Halliwells’ dramatic fall from grace. Entitled ‘The Flight of Icarus’ (see LB191), it revealed how, through what proved to be a fatal combination of reckless ambition, ineptitude and greed, the firm’s management had scuppered what formerly ranked as one of the UK’s fastest growing and most promising names.

Thanks to a series of ill-judged strategic decisions – such as a controversial property deal that saw the equity partners share a secret £15m kickback – Halliwells had, in the space of a few short years, gone from being debt-free to teetering on the brink of financial collapse.

Less than 12 months later, buckling under the weight of a spiralling £18m debt to The Royal Bank of Scotland, the firm’s crippled cashflow left it unable to pay its loan installments or rent. On 20 July 2010, Halliwells became the first UK top-50 firm to enter administration. But although the firm ceases to exist, with the practice broken up via a pre-pack sale between four rival firms, the story is far from over.

Having settled into their new homes, partners now find themselves facing horrific personal liabilities in relation to partnership loans, unpaid taxes and three years’ worth of rent on the firm’s old Manchester offices. With the creditors already circling, chaos is breaking out.

At the time of writing, arbitration proceedings were due to be launched by one of the firm’s senior partners against 45 of his former colleagues to hold them jointly liable for one seven-figure debt. There is even a class action brewing among fixed-share partners against the firm’s management for potential fraudulent misrepresentation. It’s hard to know where to begin.

‘I had to explain to my partners that the financial position Halliwells was in had nothing to do with the core business.’
Peter Jackson, Hill Dickinson

A creditors’ report issued this July by Dermot Power at BDO, who earlier that month had been appointed joint administrator alongside fellow partner and head of business restructuring Shay Bannon, blamed Halliwells’ collapse on two main factors: a significant increase in fixed operating costs due to the assumption of substantial property obligations, and a slowdown in transactional activity under the faltering economic climate. These issues were exacerbated, it added, by partner and staff departures as a result of the firm’s financial deterioration.

However, sifting through the wreckage, it is clear that of all the events that unfolded in the firm’s tragic and untimely demise, the starting point was the infamous Spinningfields property deal. What was supposed to herald a bright new dawn for the practice instead became the catalyst for its downfall.

Cause of death

It all started in June 2005, when senior partner Alec Craig chaired a meeting of the firm’s equity partners to discuss the consolidation of its five existing Manchester offices, which together comprised some 700 staff, into a spectacular new headquarters at Spinningfields. Billed as the Canary Wharf of the North West, the as-yet unfinished development overlooked the River Irwell, just a stone’s throw from bustling Deansgate, the heart of Manchester’s business district.

The details of the complex deal were kept a closely guarded secret internally, but essentially it saw the firm leverage its position as one of the anchor tenants to obtain a lucrative reverse premium, entitling it to a share of any subsequent increase in the value of the freehold and the option to buy it outright once the building was complete. When construction came to an end in March 2007, the firm cashed in and received £20m from landlord Allied London.

So a glistening new office that enabled the firm’s Manchester practices to work together under the same roof for the first time in years was topped off by a healthy financial reward – a successful deal all round, you might think. However, this only tells part of the story.

Unbelievably, just £5m of this £20m windfall was reinvested into the business. The remaining £15m was instead distributed among the equity partners and paid into their personal pension schemes, with each receiving between £250,000 and £1m depending on their position in the lockstep. The handouts were not to stop there.

‘We were actually quite positive about a merger in principle, as we knew that the London practice wasn’t viable alone.’
Former City partner, Halliwells

The firm’s remuneration committee – chaired by former senior partner Clive Garston, who received a full £1m from the Spinningfields deal just months before his planned retirement date, and also comprising a number of other senior equity partners that received six-figure sums – awarded managing partner Ian Austin a further £75,000 bonus in recognition of his work putting the transaction together. It remains the only bonus paid to an equity partner in the firm’s history. Finance director Stephen Roe, whose forecasts were used to help sell the concept to the partners, personally pocketed £500,000, according to multiple sources. ‘Stephen showed us some very sophisticated figures that proved it wasn’t necessary to plough the money back into the business,’ one former equity partner recalls. ‘If I had known that Stephen was benefiting personally then I might have been more sceptical, but at the time we took it on face value. It showed that the firm had no debt, the balance sheet was strong and the forecasts predicted that there wouldn’t be any dilution in profits at all. That clearly wasn’t the case – at best the figures were naïve and overly optimistic, at worst they were downright misleading.’

Throughout the entire process, from when the deal was first struck to when the payout was taken, the firm’s 100 fixed-share members (FSMs) were kept in the dark. One former Manchester partner’s suspicions were aroused by the number of ‘fantastic sports cars that suddenly turned up in the car park’, but generally its very existence was denied at all levels.

In March 2008, when this magazine first quizzed Austin on the deal – which would later become referred to internally as ‘trousergate’, once details finally began to emerge – he declined to comment and instead issued a statement through a PR agency dismissing any claim that the equity partners benefited materially as ‘categorically untrue’. Less than a year later, during an interview for the February 2009 feature, Austin conceded that the deal had in fact taken place but refused to be drawn on the specific details.

His only comment was that the arrangement was ‘the most tax-efficient for the business’. Retaining the additional £15m on the firm’s balance sheet, he argued, would simply result in it being added to the firm’s profits, where it would be subject to tax and then distributed among the equity partners at the end of the financial year anyway.

However, the reverse premium was taken in lieu of a three-year rent-free period, meaning that the subsequent profitability of the firm would be reduced due to the increase in costs once the move took place. At the same time, the lease duration was extended from 20 to 25 years without a break clause.

It might also be argued that the money would have been better utilised in funding the new building’s considerable fit-out costs. When the budgets for the office move were originally drawn up, this was estimated at between £6m and £7m. It ended up running to more than £20m.

Perhaps most surprising of all is that the personal payments were not subject to any lock-in or claw-back provisions. Having banked the money, partners were free to leave the firm and take it with them. Many did.

Despite this, of the 44 equity partners present, just two voted against the deal: Manchester corporate partners Charles Glaskie, who is now at HBJ Gateley Wareing; and Frank Shephard, who had only just been promoted to equity and has since moved to DWF. Julian Lewis and Simon Hardwick, both of whom had difficult working relationships with the Manchester board and Austin in particular, also raised objections initially, but were talked around thanks to the combination of some hard-selling by Austin and Roe’s extremely positive financial projections.

At the same time as the deal was struck, a clause was inserted into the firm’s partnership deed – again, without the knowledge of the FSMs – to ensure that only those equity partners present at the meeting in June 2005 would receive any of the benefits (see box, ‘The dirty deed’, page 41). Equity partners that joined further down the line – including those from the mergers with James Chapman & Co and Cuff Roberts – didn’t get a penny. (The same 44 partners would later share in the estimated £1.6m proceeds from the disposal of volume business HL Interactive, despite the fact that several – such as Garston – had already left the firm.)

Rise and fall

In questioning why just two partners objected to what now appears an obviously ill-advised and self-serving deal, it is important to consider the context under which the discussions took place.

When energetic commercial litigation head Ian Austin beat incumbent Paul Thomas in a contested election to become managing partner in February 2004, the firm had already established a reputation for aggressive entrepreneurialism. Formed in 1975 as Halliwell Landau, what started as a real estate-focused Manchester practice quickly branched out into corporate, litigation and insurance, and new offices were launched in Sheffield and London. By 1999, it had amassed some 175 lawyers and boosted turnover to £17.6m, making it Manchester’s second-largest firm.

Encouraged by the success of regional rivals DLA Piper and Addleshaw Goddard, both of whom had already outgrown their northern homelands, Austin immediately embarked on a course of relentless expansion.

Within his first year in charge, Austin opened a new Liverpool office through the firm’s first-ever merger – a £5.65m tie-up with 16-partner Cuff Roberts – and in March 2006 followed it up with another acquisition, this time of James Chapman & Co, which the firm had unsuccessfully courted in 2004.

He also took steps to modernise the firm’s structure, rebranding it Halliwells, ditching its notorious eat-what-you-kill remuneration system in favour of a modified lockstep and converting to LLP. The figures were impressive too (see box, ‘What goes up’, page 44). Such was his success that Austin was awarded Managing Partner of the Year at the 2006 Legal Business Awards, beating off competition from David Childs at Clifford Chance and Olswang’s Jonathan Goldstein.

‘In the initial years that [Austin and Craig] led the firm, they couldn’t do any wrong,’ explains one equity partner who was involved in the Spinningfields deal. ‘Ian was a breath of fresh air – he was very dynamic – and as a pair they became almost untouchable, they were beyond reproach. If he said that the deal was good for the firm, then who were we to argue – he’d never let us down in the past.’

‘It appears to have been how the business was handled over the years that was the cause of its demise, not the individual partners.’
Simon Konsta, BLG

However, things soon started to go wrong. Having already seen Maurice Watkins’ highly-rated commercial practice opt out of the merger in favour of a move to Brabners Chaffe Street, the remaining insurance-focused group that joined from James Chapman was soon rocked by the news that it was being dropped from the panel of Zurich, one of its biggest clients. The team had already lost another major client, Axa, shortly before the move, while almost half of the 29 partners that joined Halliwells would leave within the first four years. Many took significant clients with them – Norwich Union (now Aviva) went with Roger Brooks’ team to Berrymans Lace Mawer in July 2007, for example.

The combination of this fallout and the lingering effects of the property deal, which had started to become an incredibly divisive issue internally, meant that while most firms at least entered the downturn from positions of relative strength, Halliwells was already struggling.

As a result, having been debt free less than three years earlier – a fact the firm often proudly trumpeted to help attract new lateral hires – its borrowings had skyrocketed to over £20m by 2008. Worse still, this debt was initially racked up in the form of a basic overdraft with the firm’s bank, RBS.

‘All of a sudden, we were told that we had a £20m overdraft position with RBS,’ recalls one former equity partner. ‘Out of the blue, we suddenly had this massive debt. It was an incredible shock, and left us fighting an uphill battle with the bank to get it on a more structured basis.’

‘I had no intention of bailing out the equity partners when they had taken £15m out of the business, but I couldn’t afford to lose my job either.’
Former partner, Halliwells

In addition to its faltering real estate and corporate practices, which were both hit hard by the downturn and subsequently restructured during 2008, the firm was also having to contend with the fact that an increasing number of senior partners had started to leave.

These departures included many of the Spinningfields beneficiaries, with Lewis becoming the first such partner to go, departing for Fladgate (then Fladgate Fielder) in May 2008. He was followed four months later by Hardwick, his fellow objector, who joined PricewaterhouseCoopers with two other London real estate partners.

The spate of exits resulted in the business being hit by significant outflows of capital at a time that it could least afford it. ‘It caused immense damage,’ recalls one FSM present at the time. ‘It sucked a huge amount of profit and turnover out of the firm and exacerbated the difficulties we were already experiencing.’

Crash call

In an attempt to recover some of this lost capital, a number of new partners were offered promotion to equity, while existing partners – both equity and fixed share – were subject to a series of cash calls.

The first came in October 2008, shortly after the collapse of Lehman Brothers kick-started the global economic crisis, and saw the equity partners double their stake to £40,000 per point through professional practice loans (PPLs) financed by Swedish institution Handelsbanken. It’s fair to say that the request was not universally well received.

A number of individuals, such as London financial litigation partner David Pacey, required considerable convincing before they finally relented, while two – Manchester litigation partner John Lord and Paul Marco, who had not long taken over as the firm’s real estate head following Hardwick’s departure – flatly refused to pay. (Both left the firm soon after, with Lord joining Irwin Mitchell and Marco heading to Trowers & Hamlins.)

Either way, it proved to be a futile gesture. In December, with its arrears continuing to rise, RBS stepped in and forced the firm to refinance its debt.

In return for agreeing to extend the firm’s loan facilities to May 2011, the bank made an almost unprecedented move in securing the debt against a debenture in the firm. In an attempt to shore up the continued exodus of senior members, the loan also included covenants stipulating that the firm should maintain a minimum number of 38 equity partners. That same month, in what Austin insisted at the time was an entirely unrelated event, Roe left the firm after eight years to be replaced by new finance director, Ian Cadman.

By this time, a second cash call, focusing on the firm’s fixed-share partners, had already begun. The first tentative approaches were made in November 2008, but became mired in protracted negotiations that would span several months.

According to multiple sources subject to the cash call, Austin went into ‘sales overdrive’ to try to convince them to sign up. He held several meetings throughout the firm’s four offices in early 2009, and sent an e-mail to the fixed-share partnership in April stating that there was still some £2.3m of headroom under the overdraft and that the firm was performing well. Figures were also distributed showing an estimated net profit for the 2008/09 financial year of £18m (it actually made around half that).

However, as with the equity partners, the request met with a largely negative reaction among the FSMs – particularly those in London, whose relationship with the Manchester management had steadily deteriorated over the past few years.

‘The increasing desperation with which Ian was harassing us pushed a lot of us further away – I was even getting calls at home,’ says one former FSM. ‘Something about it just didn’t feel right. If the firm’s finances were in such a healthy state then why were they so eager to get us to sign up?’

What had started as gentle persuasion soon progressed into something more sinister. Several FSMs independently told LB that they were issued with ultimatums by Austin and other senior members of the board, threatening redundancy if they didn’t pay up. Another claims to have been presented with a profit and loss account as evidence of the firm’s buoyant finances, only to then discover that it didn’t include any rental obligations under the list of liabilities.

‘It was as bad as it fucking gets,’ the former partner says. ‘I had no intention of risking my own asset base to bail out the equity partners when they had taken £15m out of the business, but I couldn’t afford to lose my job either. I had no choice.’

In the end, over two-thirds of the FSMs agreed to contribute between £10,000 and £40,000 of new capital, depending on their earnings, raising over £2m.

End of an era

The debacle generated considerable resentment throughout the firm, with partners now beginning to question Austin’s management with increasing regularity.

In June 2009, Austin approached Manches with a view to a possible merger that would add some much-needed weight in the City. Although the tie-up was greeted with less than overwhelming enthusiasm by the partnership in London, who saw little synergy between the two firms’ cultures or practices, there was a recognition that something needed to be done. As one former City partner says: ‘We weren’t fussed about Manches, but were actually quite positive about a merger in principle, as we knew that the London practice wasn’t viable on its own.’

Later that month, Austin and Craig convened a meeting of the equity partners to instigate a change in the non-executive members of the board. The terms of the three incumbent partners – national corporate head Mark Halliwell, fellow corporate partner Tim Jackson-Smith and TMT specialist Jonathan Moakes – were shortly due to expire, so in order to ensure continuity, and to avoid the distraction of senior-level elections in the midst of merger talks, it was suggested that the process be advanced and the partners replaced.

The move was approved and a new board, comprising Jonathan Brown – who had joined the firm’s Liverpool office from DLA Piper in September 2005 – Manchester office head Rod Waldie and insurance chair Kevin Finnigan, was formed.

When the merger talks eventually collapsed in September, largely thanks to Manches’ market-leading family practice, who were concerned that the combination would dilute their profits, Austin’s position became untenable. His relationship with the lead partner at RBS working with the firm on its debt was also understood to have broken down.

‘It was very much a fait accompli as a new team had already been lined up, but it backfired very badly for Ian,’ one equity partner present at the meeting explains. ‘Unlike the previous board, they took a very involved role and started to really scrutinise his decisions. It became clear to them that he’d lost all credibility and that even his former supporters were turning their backs on him, so he was told in no uncertain terms that he had to go.’

‘It became clear that Austin lost all credibility, so he was told in no uncertain terms that he had to go.’
Former equity partner, Halliwells

Several well-placed sources claim that the firm wanted to get rid of both Austin and Craig, but with both sitting at the upper echelons of the 12-point lockstep, it couldn’t afford to repay their capital. Instead, Austin was offered a newly created and largely ceremonial position of executive chairman, with Brown stepping in to replace him as managing partner

All of the many sources interviewed by LB for this feature spoke highly of Brown, who declined to comment for this article. In addition to being ‘more communicative and involving in his leadership’, he benefited from not being tainted by the Spinningfields arrangement, but it soon became clear he was fighting a losing battle. As one former partner says: ‘He got the worst hospital pass in history – it was an impossible task’.

One of the final hammer blows was struck in December 2009, when Sheffield managing partner Suzanne Liversidge handed in her resignation and announced that over half of the 20-partner, insurance-focused office would be leaving with her to join Kennedys.

‘It utterly destroyed what was one of our more profitable offices,’ says one former equity partner, who estimates that it slashed £5m from the firm’s top line. ‘Insurance litigation was still the backbone of the firm, so when they left I knew the writing was on the wall.’

With the firm’s financial health continuing to worsen, a third and final cash call was conducted on a voluntary basis in January 2010. Those that benefited from the Spinningfields transaction were asked to contribute £20,000 per point – twice that of those who were not involved – a move interpreted by some as a ‘tacit admission’ by the new management that the deal had a large part to play in the firm’s perilous financial condition. It was the first attempt by the firm to claw back some of the money that left the business almost three years earlier.

Twenty eight partners stumped up cash in total – including a number that took no part in Spinningfields, such as Brown and Finnigan, who joined as part of the James Chapman merger – raising a total of £2.3m, this time through PPLs with The Co-operative Bank. What followed was a brief spell of hope.

In February, at the behest of RBS, the firm brought in an external insolvency specialist to act as a restructuring officer. The following month, Brown successfully negotiated a revised £18m facility that saw the bank put in place a three-year term loan and new overdraft provisions, sending partners an upbeat e-mail to inform them of the news.

Sadly, it wasn’t enough. In April, Halliwells was forced to instruct Warrington-based corporate finance boutique Dow Schofield Watts to market the firm in an attempt to find a buyer. In early June, Halliwells was placed on the Solicitors Regulation Authority’s watchlist after informing the regulator of its impending collapse.

Then, it finally happened: on 24 June 2010, the firm became the first member of the UK top 50 to file for administration. Almost exactly one month later, the firm was broken up by way of a pre-pack sale involving HBJ Gateley Wareing, Barlow Lyde & Gilbert, Hill Dickinson and Kennedys (see box, ‘Spare parts’, page 46).

Not over yet

While the sale has now been completed and almost all of the partners have found new homes, the saga is set to continue. Upon leaving, partners found that they could soon face a huge collective liability in relation to a slew of hitherto unknown obligations.

As with many firms, Halliwells encouraged its salaried partners to convert to fixed-share status at the end of the 2003/04 financial year in order to avoid paying employers’ National Insurance contributions. The partners were also told that they would benefit under the new arrangement should the firm float, which at that point was being discussed by the board as a possible long-term objective. Overseen by HR head Adrian Thornley, the process saw each partner awarded 0.05 points in return for a £1,000 stake.

Although the switch effectively made the partners self-employed, they were still paid a net salary with the tax contribution held for each partner by the firm. But where some firms ringfence this to keep it separate from other borrowings, Halliwells instead used it as working capital. It was not alone in doing so – others, such as DLA Piper, also use partners’ tax contributions in this way – but where it would be typical for these funds to be used to top up a firm’s liquidity, Halliwells was entirely dependent on it.

The section of Halliwells’ partnership deeds relevant to provision of tax liabilities states that it will ‘retain such proportion of each Member’s share of the profits… appropriate to meet that Member’s individual tax liability’, and that it will ‘retain the amount standing to the credit of the tax reserve accounts… to meet such Members’ individual tax liability’. It adds that such sums will be ‘debts owed by the LLP to the Member’.

‘If Austin said that the deal was good for the firm, then who were we to argue – he’d never let us down in the past.’
Former equity partner, Halliwells

Having recognised the potential timebomb that this arrangement represented in light of the firm’s ever-tightening cashflow, a number of partners – such as London litigation duo Richard Slaven and Helen Bourne – voluntarily switched from fixed-share to salaried partner status. Most were not so lucky.

With the firm entering administration before the July 2010 payment date for taxes relating to the second half of the 2009/10 financial year, the money has been lost. As a result, the partners now find themselves facing a liability to HM Revenue & Customs on unpaid tax that they’ve already had deducted from their salaries.

HMRC has agreed to defer the payment until January 2011, when it is possible that RBS’s reported £15m write-off following the firm’s sale will be set against this tax requirement through terminal loss relief, but one FSM facing a personal £30,000 liability says that the details are ‘pretty woolly’ at this stage.

Another creditor claims to have been informed by BDO that terminal loss relief – an HMRC initiative that, in the event of an insolvency or administration, allows for losses to be set off against profits made in the last three financial years – is an asset of the LLP’s members. If so, the payment would first go to the full members and then trickle down to the FSMs.

The partners are currently receiving advice from Joanne Waterfield at Deloitte, but several FSMs have confirmed to LB that, should there not be enough left in the pot, they will launch a class action against the firm’s former management for either fraudulent or negligent misrepresentation, seeking to obtain money by deception and trading while insolvent.

‘There was a clear disparity between what we were being told [about the firm’s finances] and the reality,’ one says. ‘There may not be a constructive trust there, but there are plenty of FSMs willing to make trouble – I certainly will. The partnership deeds bind you to an obligation of good faith, but that clearly wasn’t being adhered to by the management. If there isn’t enough to go around then it will get very, very messy.’

It wouldn’t be the first instance of proceedings brought by former partners against the firm. In the space of the three months running up to January 2010, the firm faced separate legal action from no fewer than three partners – Manchester dispute head Chris Phillips, London corporate recovery partner Michael McCarthy and his practice head David Grant – over their exit terms. McCarthy, who instructed DLA Piper’s national employment head Tim Marshall, even went so far as to present Halliwells with a winding up petition following its refusal to repay his partner capital, which under the new terms of the RBS loan was locked in for three years.

Several partners are also unhappy at Austin’s decision to sign them up to HMRC’s ‘Time to Pay’ (TTP) scheme last summer – which allowed the firm to defer the FSMs’ tax payment – without their consent.

In an e-mail to the partnership on 30 July 2009, which LB has seen, Austin stated that TTP was a ‘form of finance at an extremely favourable interest rate which cannot be matched by commercial lenders’, and that the firm’s decision to sign up was ‘not indicative of the inability of the firm to pay the tax’.

However, the HMRC website clearly states that the TTP scheme is ‘only agreed where HMRC is satisfied that the customer cannot pay their liability on the actual due date’. Something doesn’t add up.

‘We got an e-mail from Ian saying that he had secured this great deal,’ one recipient recalls. ‘He made it clear that it wasn’t as a result of the firm being unable to pay the partners’ tax, but the issue is that in order to qualify for the scheme you have to be insolvent. That was the whole point – it wasn’t a form of finance, it was a mechanism to help businesses that were experiencing difficulties in paying their tax. So if his e-mail was true then he defrauded the taxman, and if it wasn’t true and they couldn’t afford to pay it, which seems more likely, then it was a blatant lie to the partners.’

Although the firm met its November payment obligations set out by the scheme as planned, several partners told LB that they had contacted HMRC to seek assurances that there wouldn’t be any personal repercussions. HMRC are also believed to have seen a copy of Austin’s e-mail.

‘People like to make scapegoats and it would be unfair to say that [Austin and Craig] are solely to blame, but the truth is that so many decisions were made unilaterally – they really were running the firm as their own personal fiefdom,’ says one former Manchester-based equity partner. ‘Even now, we’re still uncovering things that they did that nobody knew about. They should be struck off.’

To add further insult to injury, the partners could find themselves hit with claims from RBS, Handelsbanken and The Co-operative Bank to repay the aggregate £13m partner capital that was funded by the banks through PPLs.

With the administrators’ report also showing that the firm made a loss of £1.8m in the 2009/10 financial year, the equity partners could even be forced to repay drawings made in anticipation of profits that never arrived. It doesn’t end there.

The most recent development sees the prospect of a further seven-figure liability in relation to the firm’s former Manchester premises at St James Court.

The firm left the 40,000 sq ft space to move into Spinningfields in 2007, being replaced by serviced office provider Your Space. However, as the first break clause in Halliwells’ lease did not fall until 2013, it had to agree to a guarantee with landlord the Langtree Group in return for its early exit. When Your Space went into administration in April 2010, Langtree immediately called the guarantee against the vested members named on the Halliwells lease for both the unpaid rent up to 2013 and dilapidations, which one of the firm’s former real estate partners says will be ‘significant’.

As a result, four partners – Craig, Thomas, Phillips and financial institutions specialist Matt Wightman, who became chief executive of HL Interactive when it demerged from Halliwells in April 2009 – have each been approached by Langtree for £225,000. It remains unclear whether Austin was also named on the lease and is therefore also liable.

In response, Thomas sent a letter to the firm’s former equity partners informing them that he would be exercising his right under the partnership deeds to demand contribution with regards to the liability. Thomas stated that he has already taken counsel over proposed arbitration proceedings and has named 45 respondents, comprising the firm’s entire equity partnership at the point it formally entered administration on 20 July 2010. Although Thomas has not named the FSMs as respondents in the arbitration, the letter makes clear that there will be an indemnity against them and that they may, therefore, be bound by the result.

Wightman and Phillips, who is now a consultant at Bolton-based firm Keoghs, meanwhile, have jointly instructed Leeds firm Walker Morris and also issued a letter to partners. The pair declined to comment but issued a joint statement saying that they ‘left the firm in 2009 under the assumption their role as guarantors would be passed on to existing members within the firm’, and are ‘confident that they are not liable’.

‘It’s just one thing after another at the moment, but this is a real howitzer,’ says one of the respondents named by Thomas. ‘Those that trousered the money [from Spinningfields] and buggered off are subject to retirement deeds, which settles all claims between them, the members and the LLP. For the rest of us, we’re getting hit on overdrawn current accounts, for personal tax obligations and this bloody lease guarantee. We’ve got the three worst kinds of creditors it’s possible to have – a pissed off landlord, pissed off banks and a pissed off HMRC. It’s an absolute nightmare.’

The situation is quickly descending into a bitter and unruly mess.

Dying breath

Of all the depressing stories to have emerged from the legal market during the recession, this must surely rank as one of the most tragic.

Five years ago, Halliwells’ meteoric growth was such that it was being referred to in the same breath as DLA Piper. Today, the firm’s website is now a largely blank white page that simply serves to direct clients to the sites of those that acquired the majority of its lawyers: BLG, HBJ and Hill Dickinson. At the top, a single word in bold: Apologies.

Perhaps the saddest aspect of all is that the underlying business was sound. The financial crisis wasn’t the sole cause of its downfall – it exposed and exacerbated mistakes the firm’s management had already made.

Amazingly, the firm was still busy bringing in lateral partners right until the end. Corporate recovery specialists Sadaf Buchanan and Dan Kelmanson joined the London office from PwC and Pinsent Masons in March, Berg Legal’s disputes head Sydney Fulda joined in Manchester the following month and Sheffield-based litigator Nicola Loadsman came in from Nabarro in May. Most shocking of all, Sunil Abeyewickreme joined the Sheffield healthcare team from Leeds firm Cohen Cramer in June – the very month that the firm entered administration.

‘We’ve got the three worst kinds of creditors its possible to have – a pissed off landlord, pissed off banks and a pissed off HMRC.’
Former partner, Halliwells

Abeyewickreme, who is now at Hill Dickinson, declined to comment on whether he had contributed capital on arrival at Halliwells or whether he was fully informed of the firm’s situation. His hire is all the more remarkable given that one source involved in the administration told LB that the prospect of winding up the business was first mooted internally in May.

‘My partners asked me why the business failed and if we’d be harbouring criminals or tarnishing our reputation by bringing these people on board,’ says Hill Dickinson managing partner Peter Jackson. ‘I had to explain to them that the financial position [Halliwells] was in had nothing to do with the core business. Take those extraneous circumstances out of the equation and you have a good practice. We would never have done this deal if we didn’t genuinely believe that.’

Ultimately, Halliwells will be remembered as a firm that so nearly achieved spectacular success, only to instead meet with spectacular failure. A cautionary tale, then – a reminder to the next generation of expansionist upstarts that, tempting as it is to view the market’s burgeoning recovery as the beginning of a wave that can be ridden to spoils and riches, the price of failure can be devastatingly high. LB