The Law Society, which regulates Britain's legal profession, is to investigate top City firm Freshfields Bruckhaus Deringer for its work advising Philip Green on his aborted bid for Marks & Spencer.
Freshfields worked for the billionaire owner of Bhs and Arcadia for some months before he declared his hand in May, saying he might make a bid.
However, within a week of Mr Green going public, M&S had obtained an injunction forcing Freshfields to stand down because it had worked for the retailer on contracts with former Next boss, George Davis, and on a legal case against supplier William Baird.
Mr Justice Lawrence Collins, awarding the injunction, said he was "satisfied there is a real or serious risk of conflict".
Mr Green hired Freshfields' rivals, Ashurst, to advise him instead. However, after six weeks of shadow boxing with M&S, Mr Green dropped his bid approach 10 days ago.
Despite being dropped, it is believed that Freshfields billed Mr Green for more than £1m in fees.
M&S, which was advised by Slaughter and May, decided against making a complaint to the Law Society about Freshfields' work for Mr Green, deciding that it had taken the matter as far as it wanted to.
Because of this, the regulatory body initially decided not to investigate Freshfields' role.
However, the Law Society has come under pressure from a number of members of its council. At least one has written to the society president, Edward Nally, to ask him to explain why it had not investigated Freshfields.
Trade magazine Legal Week has been told by a number of council members that this pressure has brought a U-turn, and the Law Society is launching a formal investigation.
"Given the judge had them bang to rights, it would be pretty bizarre if the profession's self-regulatory body did not see fit to investigate," a senior lawyer told The Independent on Sunday.
Neither the Law Society nor Freshfields wished to comment about the investigation.
The Law Society has admitted that it investigating another top City firm over alleged conflicts of interest during a takeover bid.
Allen & Overy was found to be working for two different groups preparing to make bids for supermarket group Safeway. It has claimed that Chinese walls prevented confidential information passing between the two teams, but the Law Society has yet to make a final ruling.