Cobbetts’ landlords face £24m hit
LANDLORDS of failed law firm Cobbetts’ offices in Manchester, Leeds, Birmingham and London, face a £20m hit, it has emerged.
According to administrator KPMG the landlord of the Manchester office is a company called Fellstar Limited. Land Registry documents show that New Ireland Assurance Co, is the registered owner of the building on Mosley Street.
Cobbetts signed a 20-year lease on 100,000 sq ft of space across seven floors of the £66m building in 2006.
The KPMG letter to creditors reveals that the firm, and the landlord, tried unsuccessfully to sub-let some of the vacant space.
Cobbetts, a Manchester institution with a history dating back to 1838, ran out of cash last month after suffering poor trading since last summer. It was rescued by DWF – a one time suitor – in a pre-pack administration.
Documents filed by KPMG reveal that after the decision to sell the business was taken, DWF was approached and while it was willing to do a deal, demanded a period of exclusivity to do so, warning it would walk away if Cobbetts was marketed externally.
DWF was unwilling to look at a solvent sale because of Cobbetts’ borrowings and “significant lease liabilities”, the letter to creditors by KPMG seen by TheBusinessDesk.com reveals.
If DWF’s offer was not accepted Cobbetts would have had just two weeks to find another buyer. With staff salaries and a £2.4m partners’ tax bill due in this time, the business risked collapse if an alternative did not emerge.
The deal with DWF was seen as “the best way forward” by KPMG and Cobbetts members for a number of reasons – most notably for its 8,000 clients and 400+ staff.
Cobbetts began to feel the heat in June 2012 and nearly breached its banking facilities in October. Around this time KPMG, later to be appointed administrator, was asked to draw up a detailed contingency plan if the firm’s fortunes did not improve.
Payment deferrals were agreed with HMRC, landlords and a number of retiring partners to help the firm’s financial position last autumn.
At this time Some external funding amounting to £1.5m was agreed with the Wesleyan Building Society (£1.2m) and another provider Syscap for VAT and partner tax payments due in the coming months.
The primary trigger for the firm’s demise was the recession, which sparked a major downturn in trading from 2009, partly arising from lower corporate and property transactions. In 2008 the firm’s fee income was nearly £60m, but two years later it had reduced to £44m.
KPMG, in reporting to creditors on why DWF was the best deal, said: “The only alternative would have been to carry out a very short marketing campaign in an attempt to achieve a number of sales of elements of the practice on a break-up basis which would have been likely to result in a reduced outcome for the LLP’s stakeholders.”
A break-up would have resulted in, “both additional direct and indirect costs together with a potential for increased claims from both creditors and members”, it added.
According to reports in the legal press the landlords are owed around £24m out of a total of £41m owed to creditors.
