When Lees Lloyd Whitley went into administration, it left £3m of debt and a host of unanswered questions. LDP Business reveals how lost contracts, an unpaid tax bill and its property portfolio helped bring it down

IT IS April, 2009, and dozens of Merseyside’s corporate and political glitterati are gathering at Lees Lloyd Whitley’s Riverside Park Headquarters.

An invitation for canapés, champagne and a presentation on Peel Holdings’ giant Wirral Waters scheme has brought out the crowds of great and good.

This is the latest event hosted by Lees Lloyd Whitley (LLW) for the Wirral Business Forum and the Wirral International Business Park forum.

Some delegates smile briefly at the video cameras brought in to capture the event, before settling down for the presentation.

The 6ft 8in Frank Rogers, chairman of the business forum, stands in front of an LLW hoarding bearing the slogan “Business Law – Business Class” and introduces Lindsey Ashworth, Peel’s development director.

With views over the Mersey, plasma screen televisions and a licensed bar, LLW’s third-floor lounge offers the perfect setting to hear about Peel’s plans to transform the Mersey basin.

Fast forward just five months to September 4, 2009, and the lounge is playing host to another seminal occasion, again hosted by Frank Rogers.

But this time the LLW business development manager has gathered the 90 or so staff to tell them the firm is going bust and work is being shipped out.

September 18, they are later told, will be their last day of work for LLW. They will also be paid less than a full month’s pay – though staff should carry on working right up to the 18th to ensure an “orderly transition”.

After all, 56-year-old Mr Rogers tells them, many will have the opportunity to follow partners to new firms who have agreed to take on clients and case files.

More than a month on and some staff claim Mr Rogers’ words are now ringing hollow, as just an estimated one in five employees have found work.

Mr Rogers, who is known as one of the North West's leading lawyers, is now the subject of a bankruptcy petition. Riverside Park, the owners of the 26,000 sq ft office, filed the petition after a £53,000 rent bill went unpaid.

But what went wrong at one of Merseyside's oldest and most prestigious law firms?

When it crashed into administration press agents put out a statement on behalf of the partners suggesting its demise was due to the fall in the property market.

An LDP Business investigation can now reveal the stricken firm's collapse was much more complex than that.

It has found LLW's creditors include the taxman and a string of current and former landlords.

Senior staff at the defunct firm have also confirmed in its dying days they were asked to lubricate the firm’s finances from their own pocket. Salaried partners – who did not have an equity stake in LLW – also bailed out the firm a year ago with personal loans.

And, according to a source close to the firm’s finances, had LLW and Mr Rogers been able to save a lucrative Prison Officers’ Association contract, the 190-year-old firm may have survived.

The source said: “That was a significant part of our turnover that was lost.

“You’re talking about a significant chunk of the firm’s turnover that’s been lost there. So it would have given us more options to look at, rather than the options that the partners did go down.”

It remains unclear why the POA chose to dump LLW. They have since signed a deal with Thompsons Solicitors to provide legal services for their members until May, 2010.

Mr Rogers had worked with the POA for decades and is noted as being their top solicitor in the Legal 500.

The firm had also lost a contract with Her Majesty’s Revenue and Customs (HMRC) for debt recovery.

Former LLW employees have broken their silence for the first time to reveal the story behind how the firm became one of Merseyside's most high profile recession victims.

It was Mr Rogers himself who had delivered the POA contract for LLW. He had worked with the trade union for decades and is noted for being their top solicitor in the Legal 500.

It remains unclear why it chose to dump LLW. Rival outfit Thompsons has since signed a deal to provide POA members with legal services until May 2010.

But what is clear is how much their business was worth to LLW. An internal email shown to LDP Business indicates the two law firms were in dispute over how much Thompsons should pay LLW for the existing case files being transferred out of the Wirral firm.

The POA was the second high-volume client to depart from the company in recent years. LLW used to do debt recovery work for Her Majesty's Revenue and Customs.

But the finance source confirmed one of the outstanding debts administrators Parkin S Booth are dealing with is to the taxman for unpaid PAYE and national insurance.

It is thought that, although deductions were being made from employees’ pay, at least some of that money had not made it to the Revenue.

The source added: “There would be a number of things that remained unpaid because of the situation we had reached.

“We were in discussions with the Revenue to sort that out. Arrangements to pay over a period of time had been in place.”

HMRC has made an application to the administrators to recoup some of the unpaid tax.

But salaried partners appear to have been stung and could be asked to fork out for the PAYE themselves – effectively paying the tax twice.

The seven or so salaried partners – who, sources say, were kept in the dark over the firm’s bottom line – are also thought to be joining the queue of creditors. They were asked by the five equity partners – Mr Rogers, Anthony Marriott, Graham Smith, Martin Walker and Timothy Polding, who also chaired the board – if they would loan money to the firm back in October, 2008. The personal loans would be repayable and would not mean they owned a slice of the business.

A source close to the group said they agreed to the request in the hope of safeguarding jobs.

The legally qualified source said: “They came to them last year and said the firm will close unless you put money in.

“They were told it would be sufficient to get the firm through the next 18 months.”

Salaried partners are also said to have been shocked at the number of loans that had been taken out by the firm over the years.

The source added: “It’s transpired that there were a number of loans taken out without any knowledge of the salaried partners. As a group they didn’t know they existed.

“It’s just devastated them.”

LDP Business also understands creditors have started hounding salaried partners – as well as equity partners – to repay debts. It is thought the group will rebuff demands for cash saying they were never full partners as defined in the Partnership Act.

Finance chiefs at the Bromborough-based firm were also said to be in “regular” phone contact with the firm’s bank, Allied Irish Bank (AIB).

Asked if it was AIB who finally pulled the plug, the finance source, who asked not to be named for fear of jeopardising job opportunities, said: “They had overdraft facilities that they wanted us to stick to.”

But below the higher echelons of the firm, how much was known about the debt-ridden balance sheet, angry creditors and issues with the taxman?

Grassroots staff knew things were bad, though perhaps they presumed it was no worse than at other firms.

Redundancies and vacancies being left unfilled were routine at LLW. While the firm was not unique in that respect, the frequency and volume of the redundancies were.

Staff recall “four or five” rounds of job losses since the move to Riverside Park in December, 2007. The first came just a month after the move. Each time another round of job losses was announced, staff had to reapply for their jobs.

It is thought the total headcount at the firm dropped from 150 to 90 between the end of 2007 and the administrators going in.

As one insider told LDP Business: “They never had the number of employees to fill Riverside Park. The building was half empty.

“They more or less had to shout across the room to each other. It was ridiculous.”

But more serious events were also witnessed by the staff as LLW rocketed towards its September 18 demise. Its dire finances became the talk of the office when, at the very beginning of September, three burly builders announced themselves at reception and demanded payment for work carried out in June.

Staff contacted by LDP Business recalled angry scenes and mentions of an unpaid £20,000 invoice. Those on the upper floors were told not to venture down to reception until things had quietened down.

But the builders were eventually let into the building for a face-to-face meeting with some of the partners.

The finance source said the bill was for “dilapidation work” on one of the firm’s properties.

While LLW’s Riverside Park landlords appear to have been the first to petition an equity partner for bankruptcy, the firm’s other landlords have also confirmed they are considering similar action.

The firm moved wholesale into the Bromborough offices almost two years ago, but it maintained properties on Woodchurch Road, Prenton, and on Castle Street, in Liverpool.

Around half the 1,700 sq ft of the Prenton floor space was sub-let to the Halifax bank. The rest was unused and still had more than three years to run on the lease.

The Merseyside Estates Ltd, the freehold owner, is now consulting lawyers with a view to becoming creditors for unpaid rent.

It is a similar story at the old offices on the sixth floor of Castle Chambers, at 43 Castle Street, Liverpool.

The building is owned by Merseyside Pension Fund who, according to land agents CB Richard Ellis, are also in the process of “legal action”.

At the time of going to press, neither The Merseyside Estates nor Merseyside Pnesion Fund had applied to Parkin S Booth to be official creditors. It is thought both could prusue the partners directly through litigation and future rent could form part of those claims.

Parkin S Booth say they are still collating a definitive list of creditors and are hoping to hold the creditors’ meeting in the first two weeks of November.

But legal watchers in the city return to one unanswered question over and again: why was LLW still a traditional partnership, rather than a “safer” limited liability partnership (LLP)?

Few people inside the firm have been able to shed light on the issue.

But the finance source mooted this decision was more to do with regulations than choice.

He said: “It’s fair to say that there’s certain conditions that you have to have in place to become an LLP. At that stage, we hadn’t reached that point.”