Towergate and its majority owner face a £20 million bill after settling a breach of contract claim over its poaching of several executives from its broking rival Arthur J Gallagher.
The group, one of Britain’s biggest independent insurance brokers to small and medium-sized businesses, has agreed to pay £8 million to Gallagher in two instalments, the first this month followed by another payment in April.
Highbridge Capital, one of a group of investors that rescued Towergate this year, has agreed to pay the remaining £12 million to Gallagher, which will receive the payout as two £10 million lump sums.
The settlement brings an end to a tense legal dispute that began in March, when Arthur J Gallagher sued David Ross, who had been in charge of its international division, after he quit to join Towergate as its new chief executive and several other top colleagues followed him.
Gallagher also took legal action against Mark Mugge, its finance director, who quit to take up the same role at Towergate.
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Towergate had also recruited Adrian Brown, the former RSA executive who had recently moved to Gallagher; Sarah Dalgarno, the chief risk officer; and Janice Deakin, the chief executive of its UK retail division, but they were not included in the action.
Gallagher, which sued the individuals rather than their intended employer, claimed that after being poached Mr Ross had induced the others to follow, in breach of his and their contracts.
It also alleged that several of the executives had stood in the way of a potential takeover by Gallagher of Towergate, which was up for sale at the time.
Christopher Keey, a consultant who advised Gallagher on merger and acquisitions deals, was also caught up in the dispute. Mr Ross, Mr Mugge and Mr Keey denied the allegations.
The settlement means that there is no need for a High Court hearing that was set to expose some of the tensions between the parties: Mr Ross, for example, had claimed in his defence documents that he had been placed under surveillance and did not feel safe in his own home.
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It also means that a string of planned executive moves can now take place. Mr Ross will join in November, freeing up Scott Egan, the interim chief executive, to move to RSA, where he becomes finance director.
Mr Mugge and Ms Deakin have already joined; Mr Brown and Ms Dalgarno both arrive next month.
John Tiner, the former regulator who is Towergate’s new chairman, said: “This is a full and final settlement that deals with all the issues. It means that by November we will have the full leadership team in place, which will be of significant value to Towergate in building the business.”
The settlement came as Towergate reported a pre-tax loss of £58 million for the six months to the end of June after it was hit by a catalogue of one-off charges related to its rescue restructuring, including £40 million in fees for lawyers and advisers.
Towergate’s income during the period dwindled by 10 per cent to £184 million after clients deserted because of the uncertainty about its financial future.
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Mr Egan said yesterday that, though business performance was not where management wanted it to be, there were encouraging signs that Towergate was in a position to win back its lost business and begin to grow again.
Towergate, founded 18 years ago by Peter Cullum, the Norfolk-born entrepreneur, expanded aggressively through a welter of acquisitions before stumbling under the weight of a debt pile that exceeded £1 billion.
Until its rescue via a £300 million capital injection by Highbridge, KKR and Sankaty, Towergate had been in danger of running out of money and failing to service its interest payments.