After all the mentions of RSM Tenon and the Administration of Challinors, the news that RSM Tenon themselves went through a pre-pack administration last week. They were sold to Baker Tilly – Telegraph story here.
To make the obvious point, an accountancy firm which has to restate its accounts is always going to be in trouble.
After all the comments about the problems facing the legal profession, accountants face some similar problems. Query whether growth by acquisition is always sensible, particularly if financed by debt.
News that Challinors’ PI caseload has been sold to SGI Law of Liverpool. So the people do not go with it, which I deal with elsewhere.
From the same Gazette report, news that Fentons is being taken over by Slater & Gordon (more detail here).
Apart from the further consolidation of the legal profession generally (and PI in particular) it illustrates that floating on the stock exchange may give advantages in terms of raising capital.
An interesting article from the Birmingham Post, quoting Johnathan Dudley of Crowe Clark Whitehill. This follows their annual Solicitors Benchmarking Survey. He rightly points out that when substantial and apparently successful firms, such as Challinors, crash, funders will be much more wary in advancing money. That does not just apply to banks, but also other creditors, many of which will be off the balance sheet.
Those of us who have been through a bank tightening its grip on the partners of a firm, or of suspending drawings, or indeed of the ructions of a mooted cash call, (Hill Dickinson seem to have managed it) know the pressures that this creates.
So this is a very good time to review cash management, funding requirements and income. And, yes, keep in contact with the bank, even if it is not comfortable. Think about your reaction to bad news from your staff – most partners want bad news early so that they can do something to rescue the situation. Why would a bank manager be different? Do not, above all, sail too close to the wind financially – we have seen the possible consequences.
In this instance we are talking of business resilience rather than the personal kind. Assess the risks your business faces, and the consequences of each risk. Some risks are quite likely, yet have a minor effect. Others are unlikely to happen, but the consequences can be devastating. Take action to reduce both kinds of risk, and plan how to deal with the aftermath. For example, if the office burns down, where will you relocate, how will you contact staff and clients?
A short post is not the right place to go into detail, but bear in mind that we are potentially talking about business life and death.
For an example of how one company keeps going through crises, see here for the Waffle House approach.
News from the Lawyer that ex-client Dharmendar Khag has served senior partner Paul Griffiths with a bankruptcy petition. Details here.
There is a lot to be said for limited liability in the changing legal world. Watch this space.
Whatever the ins and outs of how Challinors reached its current position, it must be tough on the Partners at the moment.
I dealt with the effects on the staff here, and some of the same issues apply to the partners, for example stress, uncertainty, future commitments, and maintaining work and professional standards. The situation must make great demands on their resilience.
The first additional pressure is bankruptcy. Challinors, as I understand it, is a partnership, not a limited company nor a LLP. I am not insolvency expert, but in the absence of a valid Voluntary Arrangement, it looks to me that any debt persists, even if an administration order is made. The consequences for families, and future practice could be severe.
Secondly there are no allegations of financial misconduct, but the firm has apparently been reported to the SRA for professional misconduct. If that allegation is proved, then that potentially has consequences for the future career of whoever is responsible.
The Partners are taking advice from specialist advisors, and with a following wind I hope the major part of the practice can continue in some form, so that damage to clients and staff is limited. We wait and see. Back to uncertainty again.
When you have to borrow hundreds of thousands of pounds from clients to meet the VAT bill, it may ring alarm bells that cash flow is not what it should be.
If you are drifting towards insolvency, it is a truism that you should take action sooner rather than later, and not work on the basis that “something will turn up”.
Meanwhile buyers are still being sought for some or all of the firm, with or without some kind of administration.
Thoughts on the staff position at our sister blog.