King & Wood Mallesons
King & Wood Mallesons (Courtesy photo)

European partners at King & Wood Mallesons could have two years of profits clawed back if they choose to reject a rescue deal offered by the global legal giant’s Asian arm.

Partners with the European arm of the Swiss verein firm have been warned that they could lose out on two years’ worth of profit distributions if they do not sign up to the rescue deal proposed by the firm’s Asian arm, sources told London-based Legal Week.

A document distributed to partners last week by CMS Cameron McKenna, which is advising King & Wood Mallesons on the proposed rescue package, said that if they do not commit to the recapitalization proposals then they could be forced to repay all profit distributions paid out during the last two years.

The scenario is one possible repercussion of not accepting the bailout terms detailed in the document, according to former King & Wood Mallesons partners. However, one former partner said such a move could prove difficult.

“Under the Companies Act, if at the time an LLP made a profit distribution it was reasonably aware it would go into insolvency, then partners could be required to repay that,” the ex-partner said. “That can only go back two years. But it’s very hard to do this, as you have to prove people knew the company would go insolvent.”

Around 60 percent of King & Wood Mallesons’ Europe, U.K. and Middle East partners must commit to providing around £14 million ($18.4 million) in capital to the firm by later this week in order for the bailout to go ahead. They must also agree to stay with the firm—formed via a late 2011 combination between China’s King & Wood and Australia’s Mallesons Stephen Jaques—for 12 months. (King & Wood Mallesons absorbed London-based SJ Berwin into its verein network in 2013.)

In return, sources suggest the Asia-Pacific arms of King & Wood Mallesons have guaranteed that equity partners will receive at least £11,000 ($13,712) per equity point in remuneration, despite the ongoing financial difficulties in Europe.

The European arm has a lockstep ladder on a 20- to 60-point scale with a discretionary bonus pool on top, so a guarantee of £11,000 per point would equate to partners receiving between £220,000 ($274,250) and £660,000 ($822,752) depending on their position on the lockstep ladder.

CMS banking and finance head Rita Lowe is believed to have authored the document given to partners last week. Lowe has previously advised on matters including the administrations of now-defunct Dewey & LeBoeuf and busted British firm Halliwells. Lawyers from CMS were present at the meeting last month, when King & Wood Mallesons informed European partners that it would have to halt its recapitalization plan following the resignation of four senior partners.

At a meeting on Nov. 10, King & Wood Mallesons partners were told that the verein firm’s Asian arm was willing to offer financial assistance, providing certain conditions were met. The 60 percent approval rate needed for the bailout to proceed equates to around 70 of some 120 partners left in the business, following some recent high-profile exits, including last month’s resignation of former managing partner Rob Day, U.K. investment funds head Michael Halford, private equity partner Jonathan Pittal and corporate partner Andrew Wingfield. (Day and Wingfield are reportedly headed to Proskauer Rose, which called off tie-up talks with legacy SJ Berwin in 2010.)

The £14 million recapitalization is roughly what European partners at King & Wood Mallesons agreed to put into the firm in July, when 98 percent of legacy SJ Berwin partners agreed to pay in what was then understood to be an extra £4,000 ($4,986) per point on the remuneration ladder. Former partners had told Legal Week earlier this year that salaried partners had been asked to each contribute around £60,000 ($74,782). The new deal is understood to have made the same contribution requirements of salaried partners.

The number of partners leaving since the recapitalization plan was initially drawn up may mean that those remaining at King & Wood Mallesons will have to pay in more than the figure that was initially reported, in order to reach the £14 million total.

A partner capital call this summer was intended to draw a line under the repeated delays in partner profit distributions that have plagued the firm for years. King & Wood Mallesons has seen a spate of exits during the past 18 months, some of whom left the firm as part of a restructuring of its Europe, U.K. and Middle East business.

On Monday, Dechert announced its hire of King & Wood Mallesons corporate and securities partner Hamish Walton in Dubai. Walton joins the Am Law 100 firm as a partner in Dubai, having joined legacy firm SJ Berwin in 2011 from British firm Clyde & Co.

European partners at King & Wood Mallesons could have two years of profits clawed back if they choose to reject a rescue deal offered by the global legal giant’s Asian arm.

Partners with the European arm of the Swiss verein firm have been warned that they could lose out on two years’ worth of profit distributions if they do not sign up to the rescue deal proposed by the firm’s Asian arm, sources told London-based Legal Week.

A document distributed to partners last week by CMS Cameron McKenna , which is advising King & Wood Mallesons on the proposed rescue package, said that if they do not commit to the recapitalization proposals then they could be forced to repay all profit distributions paid out during the last two years.

The scenario is one possible repercussion of not accepting the bailout terms detailed in the document, according to former King & Wood Mallesons partners. However, one former partner said such a move could prove difficult.

“Under the Companies Act, if at the time an LLP made a profit distribution it was reasonably aware it would go into insolvency, then partners could be required to repay that,” the ex-partner said. “That can only go back two years. But it’s very hard to do this, as you have to prove people knew the company would go insolvent.”

Around 60 percent of King & Wood Mallesons ’ Europe, U.K. and Middle East partners must commit to providing around £14 million ($18.4 million) in capital to the firm by later this week in order for the bailout to go ahead. They must also agree to stay with the firm—formed via a late 2011 combination between China’s King & Wood and Australia’s Mallesons Stephen Jaques —for 12 months. ( King & Wood Mallesons absorbed London-based SJ Berwin into its verein network in 2013.)

In return, sources suggest the Asia-Pacific arms of King & Wood Mallesons have guaranteed that equity partners will receive at least £11,000 ($13,712) per equity point in remuneration, despite the ongoing financial difficulties in Europe.

The European arm has a lockstep ladder on a 20- to 60-point scale with a discretionary bonus pool on top, so a guarantee of £11,000 per point would equate to partners receiving between £220,000 ($274,250) and £660,000 ($822,752) depending on their position on the lockstep ladder.

CMS banking and finance head Rita Lowe is believed to have authored the document given to partners last week. Lowe has previously advised on matters including the administrations of now-defunct Dewey & LeBoeuf and busted British firm Halliwells. Lawyers from CMS were present at the meeting last month, when King & Wood Mallesons informed European partners that it would have to halt its recapitalization plan following the resignation of four senior partners.

At a meeting on Nov. 10, King & Wood Mallesons partners were told that the verein firm’s Asian arm was willing to offer financial assistance, providing certain conditions were met. The 60 percent approval rate needed for the bailout to proceed equates to around 70 of some 120 partners left in the business, following some recent high-profile exits, including last month’s resignation of former managing partner Rob Day, U.K. investment funds head Michael Halford, private equity partner Jonathan Pittal and corporate partner Andrew Wingfield. (Day and Wingfield are reportedly headed to Proskauer Rose , which called off tie-up talks with legacy SJ Berwin in 2010.)

The £14 million recapitalization is roughly what European partners at King & Wood Mallesons agreed to put into the firm in July, when 98 percent of legacy SJ Berwin partners agreed to pay in what was then understood to be an extra £4,000 ($4,986) per point on the remuneration ladder. Former partners had told Legal Week earlier this year that salaried partners had been asked to each contribute around £60,000 ($74,782). The new deal is understood to have made the same contribution requirements of salaried partners.

The number of partners leaving since the recapitalization plan was initially drawn up may mean that those remaining at King & Wood Mallesons will have to pay in more than the figure that was initially reported, in order to reach the £14 million total.

A partner capital call this summer was intended to draw a line under the repeated delays in partner profit distributions that have plagued the firm for years King & Wood Mallesons has seen a spate of exits during the past 18 months, some of whom left the firm as part of a restructuring of its Europe, U.K. and Middle East business.

On Monday, Dechert announced its hire of King & Wood Mallesons corporate and securities partner Hamish Walton in Dubai. Walton joins the Am Law 100 firm as a partner in Dubai, having joined legacy firm SJ Berwin in 2011 from British firm Clyde & Co.