KEY POINTS:
A young solicitor who had taken over his father's practice rushed home elated one night.
"Dad, listen," he shouted, "I've finally settled that old McKinney suit."
"Settled it!" cried his astonished father. "Why, I gave that to you as an annuity for life."
Jokes about lawyers' fees are
low-hanging fruit for comics. Satire is by nature exaggerated, but what makes it funny is the truth at its core.
The latest line being peddled is that lawyers will be the only ones to profit from the quietening economic times.
Any fall-off in work associated with corporate deal making will simply be replaced by a rise in liquidations, receiverships, mortgagee sales, bankruptcies and litigation.
The Weekend Herald asked lawyers whether it's true - that they can never lose, come good times or bad?
"To an extent," admits Mark Lowndes, of Queen St legal practice Lowndes Associates.
"The clients that are out there doing deals and making money need legal input, and the clients that are having difficulties or entering into disputes need legal input.
"I'd like to hope that we're creating value either way," he smiles.
His firm has definitely seen a rise in insolvency work, he says. It is working with liquidators Meltzer Mason Heath on unravelling the affairs of the 22 Blue Chip companies which collapsed this year.
But wider than that, it is seeing "certain signals that seem troublingly familiar in terms of those of us who were around in the late '80s and early '90s".
More litigation work naturally flows on from more insolvency work. "There's no doubt that people who might have solved their problems commercially are now being forced into dispute through economic circumstances."
Lowndes Associates' insolvency specialist Mike Whale adds that lawyers are also doing a lot of backroom work which never gets publicity - "restructuring, where ... the banks will get together and see whether there's an opportunity to help the company trade out of itsdifficulties".
He says the rise in company failures and subsequent litigation has mostly been related to finance, property development and residential construction companies - so far.
The figures back Whale's assertion that the real trouble has yet to begin in this downturn. There were 2712 liquidations in the 12 months to June 30, just 15 more than there were in the corresponding period for 2006-07.
"It's coming," says liquidator Damien Grant, of Waterstone Insolvency, which spends about $30,000 a month on legal fees. His practice is interviewing double the number of people looking at the solvency of their businesses than this time last year.
He says people are propping up their businesses by stretching their creditors - figures by credit reporting agency Dun & Bradstreet this week show small businesses took up to 50 days to pay bills in the June quarter.
Grant says business people are also remortgaging their homes, and not paying the taxman. "I would be very confident that the amount of cash being collected by the IRD would have gone down in the last six months."
He says a ripple effect is also starting to set in - for example, this week he has been handling the liquidation of a company called Commercial Grass and Grazing, which has been tipped over by an $80,000 debt owed by a building company which itself failed earlier this year owing $1 million.
While numbers of bankruptcies have remained static, largely due to the introduction of the new No Asset Procedure regime late last year, Insolvency and Trustee Service manager Ross van der Schyff says a telling sign of the times is the rise in creditor's petition bankruptcies.
This is when a creditor seeks to have a debtor bankrupted, as opposed to the debtor voluntarily submitting to the process. It means more involvement by the lawyers.
There were 760 creditor's petition bankruptcies in the 12 months to June, compared with just 547 two years ago.
Former Bridgecorp boss Rod Petricevic, Blue Chip founder Mark Bryers and property developer Andrew Krukziener have become the poster boys for creditor's petition bankruptcies, with drawn-out proceedings against all three on their way through the courts.
Property developer Lily Zhong was bankrupted this week after an order that she repay architectural firm Sang Architects $110,000. In her case there was a lineup of lawyers representing several creditors - Hanover Finance is seeking $5 million, and mall operator Westfield is owed $850,000.
So, payday for lawyers?
Yes, says Erich Bachmann, managing partner at Hesketh Henry, "in the sense that, particularly law firms that are full service firms, they can benefit from whichever cycle is in vogue".
Clayton Kimpton, chairman of Kensington Swan, puts it like this: "I think it's lawyers taking their businesses and responding to the needs of clients."
The good firms, he says, look at where the economy's going and shift their focus accordingly.
You would think, given that a lot of the trouble so far has been led by the property development sector, if any branch of the profession was suffering it would be commercial property lawyers. As the song goes, it ain't necessarily so.
Marcus Beveridge, principal of Queen City Law, says he's never been busier.
One of Queen City Law's current projects is the Elliott Tower, which will be the second-tallest building in Auckland next to the Sky Tower.
Beveridge says ironically the credit crunch is creating more work, as developers are forced to work much harder to refinance.
In the case of one developer, there were 59 conditions that had to be met before drawdown of the debt could take place. The developer has $40 million worth of good quality property and just $10 million of debt. "In a different market it would have been a no-brainer," Beveridge says.
Rent reviews are also making work. One sizeable chartered accountancy firm was faced with a 40 per cent rent increase. "It would have really hurt them, so they elected to go into battle." Normally lawyers would not get particularly involved, but the economic times are causing tenants to "fight in the trenches", he says.
Queen City Law is also seeing insolvency and litigation work. It is co-ordinating a group of purchasers of commercial units in the failed Manukau Business Park, who plan action against the vendor company over alleged reckless trading. The investments came with a guaranteed rental return, which was not met.
One area of law which has suffered in the housing market is conveyancing, and boutique firms specialising in the service are doing it hard.
Steve Rodgers, of the three-branch Home Transfer Centre, says conveyancing has dropped off 50 per cent since Christmas.
He says the work has also become more difficult, and specialists like Home Transfer Centre lose out because they charge a fixed fee: "Where contracts came in and were confirmed and settled, now they take longer, there's more arguments, there's more issues."
However Rodgers is also a partner in Dunedin general legal practice Rodgers Law, and says work has picked up in other areas. "Rural is still strong, people organising their financial affairs is still strong.
"There is more work in the insolvency area - there are people who have signed guarantees and suddenly find that life's got bitter for them, and they need to be talking with their lawyer before they do anything silly with the bank."
Other boutique areas are faring well. Jacques Vannoort, of east Auckland firm Sanctuary Trust Law, reports brisk business in trusts.
He says he saw a rush about a year ago, as his mainly small business clients prepared for tougher economic times.
"I started doing quite a bit more trust work for people who said, 'Listen, things are not going to be lasting the way that it is, the boom is going to be over one day, I want to make absolutely sure my business is safe."'
Lawyers, especially those specialising in group actions, are gearing up for activity after the gruelling spate of finance company and property investment failures.
Grimshaw & Co, which made a name for itself in leaky home group actions, held a seminar at SkyCity last week aimed at encouraging victims to co-ordinate and consider action against the professionals - financial advisers, valuers, even accountants and other lawyers - who put them into the investments.
Despite the buoyancy in unsettled economic times, Lowndes Associates' Mark Lowndes wants it known that lawyers are not completely unaffected.
"Whilst I think lawyers still get work, it's too easy to suggest their life just goes on - it doesn't. People are more cost-conscious, it's harder to collect debtors, you've got to be more alert to make sure that you do get paid for the work you do, particularly if you're helping someone in financial difficulty."
IN THE SPOTLIGHT
While the big names get all the coverage, a lot of other legal action goes on without ever creating a headline.
Nevertheless, the proceedings surrounding Hanover Finance and former Bridgecorp boss Rod Petricevic are a good indication of the work being created for lawyers in the current economic environment.
HANOVER FINANCE
As the troubled finance company goes about attempting to collect its debts, its lawyers have been busy.
July: Hanover appoints a receiver to recover the $70 million loan it made on developer Dave Henderson's $2 billion Five Mile project near Queenstown
June: The Court of Appeal upholds an earlier judgment that property developer Andrew Krukziener must repay Hanover $4 million. The financier is now understood to be pursuing bankruptcy proceedings against Krukziener.
June: Hanover wins a summary judgment against property developer Lily Zhong, ordering her to repay it $5 million over the Winsun apartment development. Last year it sent 92 of the apartments to mortgagee sale.
May: It puts the $57 million Kinloch golf resort near Taupo up for mortgagee sale.
ROD PETRICEVIC
As the receivers and government agencies unravel events that lead to finance company Bridgecorp's demise, a raft of legal proceedings have ensued:
August: Bridgecorp's receivers pursue bankruptcy proceedings against Petricevic.
July 29: Petricevic and fellow former Bridgecorp director Robert Roest appear in the Auckland District Court to face three criminal charges.
July 28: Petricevic's $120,000 Porsche is kept in the custody of the High Court, pending a further hearing
July 15: Petricevic fails to meet a court-ordered deadline to come up with $576,000 he owes Bridgecorp for a personal tax bill. It follows a summary judgment gained by Bridgecorp's receivers in June ordering him to pay up.