Brexit shattered glass ()
Continental Breakfast: your daily update on what’s happening in Europe.
A private report by EY has stated that London could lose 18,000 legal and accounting services jobs if the U.K. no longer has access to the single market once the country leaves the European Union, the Financial Times reports.
The accounting giant estimates that a loss of passporting rights for euro-denominated clearing could cost London a total of 83,000 jobs over the next seven years. The U.K. capital dominates the European clearing market and currently processes around $570 billion of euro derivatives each day.
Xavier Rolet, chief executive of the London Stock Exchange, which commissioned the EY report, previously told Bloomberg that at least 100,000 jobs would be at risk if clearing leaves London. LSE is the majority owner of LCH, the world’s largest interest rate swaps clearer, which employs more than 500 people in the city.
U.K. prime minister Theresa May has indicated that the country will withdraw from the European single market as part of a so-called “hard Brexit.” There are fears that this could result in banks and other companies—including global law firms—shifting business away from London to other European cities.
Financial institutions are particularly concerned about a potential loss of access to the EU single market, which many rely on to run European trading operations out of London. Russia’s VTB Bank recently became the first major financial institution to announce that it will relocate its European headquarters from London due to the U.K.’s decision to leave the EU.
May had previously announced that she would trigger Article 50, which starts a two-year deadline for an EU member to complete its exit from the political bloc, by March 2017. But that has now been thrown into doubt after a recent landmark High Court ruling that the Brexit process must be subject to a parliamentary vote. U.K. politicians, the majority of which wanted the country to remain within the EU, could theoretically delay or even block the process. The government is set to appeal the ruling before the U.K. Supreme Court next month.
Olswang Client Arrested After Controversial BHS Deal
The former bankrupt who bought British retailer BHS for just 1 pound ($1.25) last year has been arrested for failing to pay more than 500,000 pounds ($625,000) in tax on money he took from the now defunct department store chain.
BHS became one of the country’s largest ever corporate failures less than a year after Dominic Chappell, who was picked up by authorities on Sunday in a dawn raid at his home, purchased the company from retail magnate Sir Philip Green in a highly controversial deal. More than 11,000 jobs were lost and 20,000 pensions (the U.K. equivalent of a 401k) put at risk after it emerged that the company, which had more than 160 stores across the U.K., had a pension deficit of 571 million pounds ($698 million). Green, who has a net worth of more than $5 billion, and other shareholders had taken around 580 million pounds ($709 million) out of the business during his ownership.
The BHS saga has involved a number of leading U.K. and U.S. law firms.
Weil Gotshal & Manges and DLA Piper took the lead roles on the administration, acting for the company and administrators, respectively, while Jones Day was appointed by the administrators to investigate the actions of the company’s former directors. Linklaters then acted for Green’s Arcadia Group on the sale of the company to Chappell’s Retail Acquisitions, which was advised by London-based technology, media and telecoms specialist Olswang.
Partners at Eversheds, Linklaters, Olswang and Nabarro were among those questioned by the government committee investigating the company’s sale and pension deficit. Nabarro had provided pensions advice to Arcadia owner Taveta, while Eversheds advised the trustees of the BHS pension plan.
Linklaters and Olswang were criticized by the government for having only carried out “cursory” checks into Retail Acquisitions and Chappell, who had previously been declared bankrupt three times. It was revealed after BHS’s demise that Chappell had used a 1.5 million pounds ($1.8 million) BHS loan to repay the mortgage on his family home.
The law firms provided “an expensive badge of legitimacy to people who would otherwise be bereft of credibility,” the parliamentary report said. It also criticized Olswang, which last month announced a three-way merger with U.K. law firms CMS Cameron McKenna and Nabarro, for citing legal privilege as a reason for not disclosing some information to the committee investigating BHS’s demise. The firm “sheltered behind these duties when their interests–and that of the public–would have been better served by full and frank disclosure to legitimate parliamentary scrutiny,” the report added.
London media and privacy boutique Schillings then got involved after it was hired by Green to threaten one of the co-authors of the government report. The firm wrote to politician Frank Field to demand an apology after he claimed Green had “plundered” the BHS pension scheme.
Green fought back last month by publishing a legal opinion that dismissed the findings of the parliamentary inquiry as “bizarre” and “unsupportable.”
KWM Asia Offers To Bail Out Euro Arm…With Some Catches
King & Wood Mallesons’ Asian arm has offered to bail out the firm’s struggling European practice—but only if partners in the region agree to stump up 14 million pounds ($17.4 million) of their own cash and commit to not leaving for at least 12 months.
The deal, which needs to be approved by KWM’s European partnership by the end of the week, would provide a much-needed boost to the firm’s capital and put a halt to the stream of partner exits that have rocked the business over the past six months.
KWM recently had to halt an $18.4 million recapitalization program following the shock resignation of four senior partners in London, including former managing partner Rob Day and U.K. investments funds head Michael Halford. (Day and fellow corporate partner Andrew Wingfield have now joined the London office of Proskauer Rose, which six years ago held merger talks with KWM’s legacy European arm. Halford and the fourth member of the group, private equity partner Jonathan Pittal, are yet to surface.)
The planned capital injection, which also included salaried partners for the firm’s time in the firm’s history, was designed to boost the firm’s capital after partners had been subjected to repeated delays to profit distributions. But it was put on hold to allow the firm time to assess the impact of the loss of the four partners’ estimated $11.3 million in annual billings.
KWM global managing partner Stuart Fuller last week announced that he will stand down by the end of the year. It leaves the firm with yet another leadership position to fill, having only recently ended its six-month search for a new European management team.
It recently emerged that Morgan, Lewis & Bockius had cooled its interest in merging with KWM.
Publicly Listed U.K. Law Firm Splits From Scottish Arm
Gateley, which carried out an initial public offering on a submarket of the London Stock Exchange in June 2015, will end its decade-long association with HBJ Gateley in May.
This isn’t another Scottish bid for independence, however: HBJ, which remained an independent entity following the tie-up and was not part of the Gateley IPO, is understood to be in merger talks with national midmarket practice Addleshaw Goddard. It is the second time this year that Addleshaws has been in merger talks with a firm north of the border, having previously held unsuccessful negotiations with Scotland’s Maclay Murray & Spens.
Gateley’s equity partners received a $30 million windfall when the firm first went public and earned an additional $8 million from selling their shares in the practice last year, with five board members pocketing more than $400,000 each by offloading stock.
The Birmingham-based firm raised around $36.5 million via its flotation, valuing the business at more than $120 million. It has used the proceeds of the transaction to build working capital and expand the business by acquiring professional businesses that service the firm’s existing clientbase. Gateley has so far spent almost $6 million for a tax incentives advisory business and a property consultancy, and is now on the hunt for other targets to further broaden its offering.
Gateley is one of several U.K. law firms taking advantage of a change in legislation permitting professional investors and nonlawyers to hold equity stakes in law firms—something that, despite decades of debate, is still not possible in the United States.
Northwest U.K. regional firm Knights, which has a referral relationship with Hogan Lovells that sees it handle some of the global law firm’s lower-value work, has increased its revenue by 400 percent since it became the first British law firm to take on external investment in 2012. Knights has used the funding to take over the Chester office of Hill Dickinson, one of the U.K.’s leading national firms, and earlier this year acquired medical and clinical negligence claims specialist Darbys Solicitors in a deal that doubled its total head count, to over 460 employees.