Ex-Ince & Co partners say they feel "betrayed" by their former colleagues after it emerged they could lose out on hundreds of thousands of pounds as a result of the pre-pack administration sale to Gordon Dadds.

Ex-partners are facing losses of as much as £500,000 after Gordon Dadds acquired the firm's UK business out of administration, which has prompted widespread concerns among former partners over their potential financial exposure.

The money in question includes six-figure personal loans paid into the firm by former equity partners and a looming tax bill, as well as earnings that could potentially be clawed back from partners if it is deemed that the firm had been trading insolvent for some time.

One former partner said he had spoken with a number of other ex-partners and their "conservative estimate" of what their combined losses will be was about £6m.

One ex-partner said former Ince partners had been "sold down the river", while another described his fear of losing his house and having to tell his family about the huge bills resulting from the pre-pack deal, which enabled Gordon Dadds to acquire Ince's UK operations out of administration, which limited its exposure to Ince & Co's creditors.

These liabilities include six-figure loans, usually from Royal Bank of Scotland, that were paid into the firm by partners on joining the equity.

In normal circumstances, this equity is paid back in instalments by the law firm to the loan provider. This typically happens in the three years following a partner's retirement. However, the 20-plus partners who retired before those repayments could be completed are now being contacted by RBS to repay the loans. Many are now in negotiations with the bank. For recently retired partners, who have had no instalments paid by Ince, this could amount to £300,000, depending on their level of seniority, they said.

Tax bills

Those who retired in the current tax year could also be hit with an additional unexpected tax bill of as much as £80,000-£90,000, they said.

Former Ince partners said they had monthly deductions taken from payslips that were used for working capital purposes, a pool that would be drawn on to pay partner tax bills at the end of the tax year.

"What we agreed to, foolishly, is that the company could use those funds as working capital for the company," said one former partner.

He added that he believed that "after the pre-pack deal… all of the money we had to pay the taxman on 31 January will now have to come out of our pocket".

I'm not a f***ing idiot – I wouldn't have resigned if I knew I'd be stuck with this

There is also frustration among some partners who left the firm just before the pre-pack deal was announced.

Former partners have lamented a change of terms in the Ince and Gordon Dadds agreement. A statement regarding the merger from Gordon Dadds dated 29 October, shortly after initial terms were agreed, said: "Gordon Dadds will also settle the capital and current account balances (estimated at £9.1m) due to members from the entities acquired."

One partner said this line was notably changed in later statements to only paying "certain former members of Ince".

He added: "I felt free to resign and I literally didn't think about it again until 3 January. I'm not a f***ing idiot – I wouldn't have resigned if I knew I'd be stuck with this."

Another former partner said: "No one saw this coming. The poor guys who left a few months before the end, who could have perhaps stayed on, have been hit by a steamroller. Some of them are relatively young, so they might have time to make it up – but equally they've probably not got enough in savings if they have a young family."

Another said: "There's certainly a suspicion that partners who've left for clients will be seen favourably. It would cost Ince a lot of money to pay off a partner. They could do a deal or pay half – whether that's worth it, I don't know."

No-one saw this coming. The poor guys who left a few months before the end have been hit by a steamroller

Chances of repayment

Ultimately, partners said they "aren't holding their breath" on being repaid their equity, or their tax.

John Lord, a disputes partner at Knights who has previously advised partners on the fallout from law firm collapses such as that of Manchester firm Halliwells, is equally pessimistic: "I can tell you right now that it is highly unlikely that there will be a distribution to the LLP's members. They are unsecured creditors and I expect that there will be nothing left for the unsecured creditors after the bank and other secured creditors have been paid and the administrators'/liquidators' fees discharged."

Lord added that to his knowledge, no firm having entered administration has ever repaid its partners their capital and he would be extremely surprised if the Ince partners recover theirs: "Look at Halliwells, Parabis, Cobbetts, Dewey & LeBoeuf – there's never been a surplus amount of money to pay partners back."

Despite the pessimism of Lord and the former partners, a person close to Ince Gordon Dadds told Legal Week that he thought it was "very likely that partners will be paid back", although wouldn't go into specifics on how, or what form that would take.

Another £200,000 bill

Yet another issue hanging over the heads of former Ince partners is whether administrators will look to recover even more money from partners once the accounts for legacy firm Ince have been finalised.

Ince's last set of accounts were completed up to April 2017. According to joint administrator Andrew Hosking, this means former and current partners cannot rule out being subject to a claim by Quantuma, which is acting as the administrator on process. Hosking confirmed this was a possibility.

Lord echoes these concerns for Ince partners: "Claims are frequently brought against the former members of insolvent LLPs for wrongful trading or as a result of overdrawn accounts."

The issue, according to Lord, hinges on the date of insolvency for Ince, which will be determined by Quantuma. "Drawings by partners are paid in anticipation of profits to be earned by the LLP. If there are no profits, then drawings will be reclaimed," he said.

One partner said he might face another £200,000 bill if the administrators decide that Ince had been trading insolvent since January 2018.

Hosking said that while he appreciated the frustrations of partners, he was "working as quickly and diligently as possible" to resolve all issues.

"As is usual in a large law firm insolvency, this is a very frustrating period for creditors or those parties who believed they have a claim against the partnership. It is equally frustrating for the administrator, for he is being asked by creditors to be transparent while he is working to ascertain the timeline as to the firm's collapse."

Partners in London and China have sold their former colleagues down the river

'Extremely disappointed'

The fallout of the merger, which one former partner described as "a complete mess", has left former partners exasperated with what they see as failures of management, and resentful of those who carried on to form Ince Gordon Dadds.

One former partner said: "I'm extremely disappointed in the behaviour of both Gordon Dadds and my former partners. Partners in London and China have sold their former colleagues down the river."

One current partner at Ince Gordon Dadds responded: "I like my former colleagues and it breaks my heart. But personally I think the decision was right, and there will always be people who won't be happy."

Another ex-partner said: "It's a shock, and I think there's also a degree of betrayal. The existing partners wouldn't be where they are without the partners before them who created the reputation and success of the firm."

He added: "Obviously they weren't in a great position during this deal and it might be the only in the alternative they had. I'm not in a position to say. But in the end, they've left us where they've left us."

Quantuma said it will give an update to creditors in the next four weeks on its findings to date, and will produce proposals for creditors to consider. At that point, former partners will hope to be clearer on to what extent they are left in the red.

A spokesperson for Gordon Dadds Group said: "Unfortunately we cannot comment as this is a matter for the Administrators."