Halliwells - Corporate Law Firm of the Year
Wednesday, 14th July 2010
Birmingham Post column
6 July 2010
By Dean Parnell
On 24 June 2010, law firm Halliwells was named Corporate Law Firm of the Year by a regional business magazine. It was a good night for this Manchester heavyweight, as they also picked up three other awards.
The following day news broke that the firm had major debt problems and it is likely to be going into administration.
The news has sent shockwaves through the legal community. Halliwells has 136 partners, more than 800 staff and a turnover of approximately £67 million. How could a large and apparently successful legal practice come to such an abrupt demise?
Although the recession played a significant part in the destruction of this respected giant, the main problem appears to be that the firm moved into very expensive offices. When times are good these overheads can be absorbed, but when the turnover of a business is hit by recession such costs can make the difference between survival or failure.
Another issue which may have compounded the problem is possible under-capitalisation by Halliwell’s partners. In a law firm partners are required to contribute capital to fund the firm, in the way that shareholders do in a public company. This sum, combined with any undrawn profits, comprises the capital base which supports the business and provides funds for investment. Under-capitalisation occurs when partners fail to increase capital over time or do not put it in to begin with, so there is insufficient money in the business to cover the hard times.
Firms looking to raise money do so either by borrowing money or by partners contributing more capital. Recently, the trend among law firms has been to borrow money, £17million in the case of Halliwells. They are not alone: debts among the top 40 law firms showed an increase in borrowing from £425 million in 2007/2008 to £591 million in 2008/2009.
There are many different business models for law firms and there are some highly geared and extremely successful practices. It is not so much the model of law firm that matters, it is more about sensible management. We are very fortunate in this country to have a legal profession that is extremely well regulated and which has one of the highest standards of integrity in the world.
What happened with Halliwells is extremely sad, but we should not assume that this is indicative of the general state of our legal profession. Our profession is extremely strong. Within the Midlands we have a superb legal sector, reputedly the best outside London. We are proud of our regional legal community, and rightly so!
