Spectre of administration raises possibility that partners could be liable for millions in capital contributions

Existing and former Halliwells partners may find themselves jointly liable for around £10m owed to the national firm's banks as it moves to thrash out a deal to transfer the business.

Halliwells' banks collectively lent partners around £10m to fund capital contributions, which the law firm confirmed it is unable to pay back. Usually a law firm undertakes to pay the loan – which is taken out by partners and put into the firm on entering the equity – back to the bank on the partner's departure. However, lenders could now turn to individual partners to recover what they are owed.

In addition to initial capital loaned by Royal Bank of Scotland (RBS) to partners on entering the equity, a number of partners could find themselves liable for loans taken out for a 2008 capital injection. Equity partners were asked to double their capital in the firm, borrowing the money from Swedish bank Handelsbanken. At the same time, fixed-share partners were asked to contribute between £10,000 and £20,000 each.
This means in total some partners could be liable to pay back loans of hundreds of thousands of pounds.

A number of ex-partners have expressed concern that they will potentially be left bankrupt if the banks seek to recover the money. If this is the case, many will not be able to remain in their new firms' partnership as UK laws and the majority of partnership deeds require automatic expulsion of personally insolvent partners.

Halliwells, which filed a notice of intention to appoint an administrator last Thursday (24 June), is currently in discussions with a number of firms to sell off all or part of the business. It is understood that RBS hopes to secure around £12m from the sale of the firm. Halliwells' corporate debt with RBS currently stands at £17.7m.

Hill Dickinson, which is in detailed discussions to take over the majority of Halliwells' business and is the only firm to set out a formal offer so far, has offered to repay the bank a portion of the capital owed as part of the deal.

If Halliwells and Hill Dickinson cannot come to an arrangement it is likely that Halliwells will look to sell off parts of the business to a number of firms. Barlow Lyde & Gilbert (BLG) is understood to have expressed an interest in taking on Halliwells' 100-strong insurance team for £5m.

The firm is hoping to agree a sale without having to enter into a long process of administration, working with accountants BDO Stoy Hayward to consider its options. Currently there is a moratorium on Halliwells' liabilities, and the firm has up to 10 working days from the point of filing notice to find a buyer. However, the firm could extend this deadline by filing rolling notices.

Halliwells said in a statement: "Halliwells LLP is in advanced discussions for the transfer of the business to another highly-regarded firm of solicitors due to events that have adversely impacted the finances of the firm. The underlying business remains strong and has attracted interest from a number of parties."

Hill Dickinson and BLG declined to comment.

Separately, it has emerged that Halliwells laid off its seven-lawyer London real estate team at the end of May, including two partners.

Additional reporting by Sofia Lind.