DWF is understood to be in talks with Cobbetts over a potential deal which could see it take on the stricken firm, which yesterday (30 January) filed a notice of intention to appoint administrators ahead of a fire-sale of its business.

A senior source in the Manchester market suggested that a pre-pack deal would be a likely outcome, allowing DWF to minimise its exposure to Cobbetts' debt.

The news comes after merger talks between the two firms were called off in January last year, with the firms citing "current uncertainty in market conditions".

"Problems at Cobbetts were about cash flow not income," said the source. "It's quite a conservative firm and was very worried about trading while insolvent.

"It's very sad for the firm. As with Halliwells, their expansion wasn't well managed; Leeds was not a good move, and the firm didn't concentrate on Manchester, while its large property-facing practice meant that in it has been more adversely affected throughout the downturn, resulting in both staff cuts and a fairly large overdraft."

As revealed by Legal Week, Cobbetts last week took out a debenture that effectively secured all of its debt and future debt to its major creditor Lloyds TSB.

Cobbetts' 2010-11 limited liability accounts revealed last year that the firm had agreed to refinance £10m in existing loan and overdraft facilities with Lloyds. According to accounts filed with Companies House, DWF also carries debt, with borrowings of £11m recorded in 2010-11, down from £13m the previous year.

DWF, which is led by managing partner Andrew Leaitherland (pictured) has been in expansive mode in recent years, undertaking numerous mergers, with the most recently announced union with professional indemnity firm Fishburns set to go live on 1 February.