Ex-Cobbetts partners may have to stump up cash in pay-out to firm creditors
Former Cobbetts partners who moved to DWF in last year's pre-pack deal may be asked to partially fund distribution payments to creditors, Legal Week understands. KPMG - which is handling the administration of the collapsed law firm -
January 10, 2014 at 03:27 AM
3 minute read
Former Cobbetts partners who moved to DWF in last year's pre-pack deal may be asked to partially fund distribution payments to creditors, Legal Week understands.
KPMG – which is handling the Cobbetts administration – refused to rule out the possibility the partners will have to fork out to resolve the collapsed firm's outstanding debts.
No legal proceedings have so far been taken against any party to recover funds owed to creditors, and it is not known how much partners might be asked to for.
Liabilities include £2.5m owed to Lloyds TSB Bank, £2.7m to HM Revenue & Customs (HMRC) in unpaid tax and VAT bills, and £91.6m due to unsecured creditors, largely made up of outstanding lease agreements.
According to a source close to the administration process, equity partners who moved to DWF could soon be asked to cough up money to support disbursements to creditors.
A progress report published by KPMG in September stated fixed and floating charge creditors would be repaid in full, while unsecured creditors could also expect a distribution.
The total cost of the administration itself will be paid for by funds already recovered in the wind-down of Cobbetts, and KPMG confirmed ex-partners would not be liable to any further administration costs.
These costs totalled £1.7m between 6 February and 5 August last year, the September report revealed.
"From our point of view, we can only wait until things are resolved and deal with any requests as and when they come," commented one former Cobbetts equity partner, who had not had any direct contact from administrators.
"The investigation into the administration is ongoing and any such proceedings will be published in future progress reports," a KPMG spokesperson said in a statement, while refusing to comment on the possibility partners would face requests for capital.
The next administrators report is due to be published in March.
Under the terms of the pre-pack purchase agreement, Cobbetts partners who moved to DWF are currently in a two-year lock-in, which if broken could incur a financial penalty of up to £100,000.
Cobbetts entered administration in February 2013 after its business failed to recover from the impact of the financial crisis, while paying off expensive leases on its offices taken out in 2006 and 2007. Its pre-pack takeover by DWF saw the firm pay a guaranteed £3.9m for Cobbetts' assets and work in progress.
Separately, DWF this week confirmed it is working with its tax advisers to look at its partnership structure, following the HMRC's proposed changes to the taxation of LLP members.
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