Allen & Overy (A&O) has been forced to step down from parts of its advisory role to the Co-operative Bank following a conflict caused by its dual mandate for the bank and former majority owner the Co-operative Group.

The news comes as the Co-op Bank is poised to appoint a new general counsel, after the Co-op Group lost overall control of the bank to a consortium of hedge funds.

A new general counsel for the bank will be announced in the Co-op Bank's prospectus filing for a 2014 public float, which is expected to be released imminently.

Alister Asher – the former head of A&O's financial investments group who was parachuted into the Co-operative Group general counsel role in July – will still continue to work with the bank, with the group remaining the single largest shareholder.

Although A&O continues to advise the Co-op Group on the implementation of the restructuring, Clifford Chance has been drafted in as the Co-op Bank's adviser on areas where the bank and group may see conflict in the future.

A&O worked with both the bank and the group for around a year on the restructuing plan, with CC brought in at a late stage to advise in particular on the shareholders' agreement.

Linklaters also took a key role advising the syndicate of lending banks, the financial advisers to the group and the bank, and also an independent committee of directors looking into alternative recapitalisation plans.

Today (4 November), the bank reached a deal which will see bondholders receive a 70% stake in the bank, with the Co-operative Group retaining a 30% share.

The Group was force to produce a rescue plan for its bank after a £1.5bn capital shortfall was identified earlier this year.

In July, Legal Week reported that partners at rival firms had voiced concerns over A&O's dual mandate, if disagreements between the Co-op Bank and Co-op Group arose.

It is understood that the Co-op found no conflicts of interest at the time of A&O's dual appointment, but a source close to the group said "it became increasingly apparent that there was a conflict once the Group was not clear it would hold on to 100% of the equity in the bank".

At the time, the magic circle firm said it was "aware of its professional obligations and does not discuss its confidential client affairs with third parties".

Shearman & Sterling took the lead role for the group of bondholders, led by hedge funds Aurelius, Silver Point and Monarch.

The US-headquartered firm fielded a London team that included financial regulatory head Barney Reynolds, corporate partners Laurence Levy and Jeremy Kutner, acquisition finance partners Anthony Ward and Clifford Atkins, and bankruptcy partner Solomon Noh.

Separately, Brown Rudnick corporate restructuring partner Louise Verrill took a lead role for a group of retail bondholders headed by analyst Mark Taber.

A&O lead partners Mark Sterling and Richard Slynn were unavailable for comment, while a spokesperson declined to comment further.