Rowlands pre-pack leaves likely debts of £3.2m
The pre-pack of law firm Rowlands Field Cunningham is likely to leave behind debts of £3.2m once assets are realised, according to a report filed by administrator Duff & Phelps.
The report states that a “legacy of debt” and an increasing squeeze on margins due to growing competition in the personal injury sector meant that the firm was eventually unable to repay a rescheduled tax debt which it had built under Her Majesty’s Revenue & Customs’ Time To Pay scheme.
It was also hit with a winding-up petition “for unpaid deferred consideration relating to a previous acquisition”, forcing it to appoint Sarah Bell & Steve Muncaster from insolvency firm Duff & Phelps as joint administrators on December 22, 2011.
Administrators completed a “pre-pack” sale to Manchester-based competitor Linder Myers, which has agreed to pay an initial £535,000 for work in progress and £35,000 in goodwill payments.
An estimate of the firm’s financial position shows that it is also likely to collect around £695,000 owed by clients and £266,000 in disbursements, meaning that administrators are estimated to realise a total of £1.5m from the firm’s assets.
However, it owed more than £4.7m in debts, including £2.7m to its bank RBS and a further £2m to trade creditors – £900,000 of which was owed in deferred consideration from a previous merger.
As a result, the bank is likely to face a shortfall on its loans and unsecured creditors are unlikely to receive the money they are owed.
Draft accounts for the firm showed that revenue for the six months to October 31, 201, dropped to £2.3m – on which the firm made a profit before interest or members’ remuneration of £266,000. During its last full year of trading to April 2011 it declared a profit of £1.1m before interest and members’ payments on revenue of £5.7m. The firm had nine equity partners and three salaried partners.
Rowlands Field Cunningham was formed in May 2010 following its takeover of the Field Cunningham and Otten Penna practices.
Last week, The Lawyer magazine said that former Rowlands Field Cunningham partner Simon Hughes is suing the firm for capital repayments which he claims the firm owes to him.
The pre-packaged sale of the firm to Linder Myers meant that the jobs of 80 employees and partners were preserved, thereby preventing at least £530,000 in statutory redundancy pay.
Linder Myers’ managing partner Bernard Seymour has said the deal means his firm is likely to achieve turnover of £16m in its next financial year and £20m within 18 months. It now has 300 staff, including 43 partners.
