Former Cobbetts partners block payment to major creditor

FOUR former Cobbetts partners have succeeded in blocking a payment to the collapsed law firm’s secured creditor with a threat of legal action.

A final report by administrators at KPMG said they have withheld a final £337,000 payment to Lloyds Bank after being served notice of a potential legal action against the firm.

The ex-partners claim that, “money owed to them in relation to capital and tax reserve accounts should have been held on trust”.

The administrators said they had postponed the payment while the matter is investigated. Lloyds was owed a total of £7.3m, with £2.3m of this sum secured.

The identities of the four partners was not revealed in the report but it is likely to be referring to Andrew Wright and Charles Bond, who left Cobbetts to join Canadian firm Gowlings’ London operation in February 2012, and two others.

Mr Wright lost more than £320,000 when the firm went into administration in early 2013 with debts of around £91m. Only those who were partners at the time of Cobbetts’ administration and joined national firm DWF had their capital contributions protected as part of the £3.9m pre-pack deal. Mr Bond and Mr Wright said they had not yet seen KPMG’s report but “assumed” it referred to them.

In a statement Mr Bond said: “As you will have seen from previous press reports, Andrew and I lost our equity capital at the time of the administration, despite having left almost a year before the administration. In addition, Cobbetts never paid the tax due to HMRC on behalf of all four of us as they were required to do. We left thousands of pounds worth of work with Cobbetts, and referred even more to them before the firm went into administration. We understand that partners at the time of the administration should be able to recover their equity capital back through tax reliefs.

“We find it disappointing, as all unsecured creditors must, that a law firm with a revenue of over £40m was sold in a controversial pre-pack on an exclusive arrangement for only £3.9m (with costs paid to the administrators of over £1m) and yet nearly £10m in debts have since been recovered by the purchaser.”

Much of Cobbetts’ total debt, around £75m, relates to rents and lease liabilities. The report states that the total debt figure should eventually be “substantially lower” as certain claims have been partially mitigated. The administrators said they expect to make a payment to unsecured creditors. KPMG’s total time costs have reached £1.17m, at an average rate of £335/hour.

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