KWM China bail out fails and EUME arm moots merger rescue plan

King & Wood Mallesons’ Chinese rescue deal has failed.

It is understood not enough partners agreed to the terms of the deal including to being locked-in for a year.

The firm released a statement today (22 November) saying the UK, Europe and Middle East (EUME) arm has failed to secure financial backing from other parts of the verein to fund the firm.

It continued: “Regrettably, insufficient value of new capital was committed” following the well-publicised China bail-out plan.

It then revealed the firm was “considering a range of strategic options, including mergers, in conjunction with the firm’s bankers and financial advisers”.

An all-staff meeting has been called for later today.

Sources close to the firm said there was “no confidence” that management would be able to secure another rescue deal.

Consensus among the staff is that they are “fully expecting KWM to collapse” as a result of today’s announcement, according to a source close to the firm.

The China rescue deal followed KWM’s previous plan to recapitalise the firm failing due to “revenue implications”.

Around 98 per cent of EUME partners had voted to inject £14m of capital into the firm over the summer, but the plan faltered after several big-billers resigned on the same day. The latest exits included former managing partner Rob Day and head of investment funds Michael Halford.

CMS Cameron McKenna head of banking and finance Rita Lowe has been advising KWM on its proposed China rescue deal, The Lawyer revealed last week.

Lowe has spent her career advising law firms and other businesses on administrations and significant restructurings, including Halliwells, Manches, Challinors and, the largest ever administration of a law firm, Dewey & Le Boeuf.

She has been working behind the scenes with KWM management on a proposed deal to inject £14m of cash from the Chinese verein into the UK, Europe and Middle East business.

CMS Cameron McKenna was first known to be providing legal and restructuring advice to KWM last month when it emerged the firm was present at an all-partner conference to discuss the firm’s increasing debt levels.

CMS sent a memorandum to all remaining EUME equity partners on Tuesday (16 November) outlining the terms of the China bail out.

The memorandum, understood to have been authored by Lowe, outlined the consequences of accepting or not accepting the deal.

New EUME management Tim Bednall and Michael Cziesla who were both elected in October, flew out to China earlier this month to hash out the rescue deal with Chinese bosses and Fuller after its planned capital call failed.

They then presented the deal to the partners on 10 November, one day after a shock announcement that global managing partner Stuart Fuller will step down from the top job at the end of this year.

The KWM statement in full reads:

“It was announced today that King & Wood Mallesons EUME has not been able complete its planned recapitalisation programme. The programme was paused at the end of October 2016 whilst the firm assessed the financial impact of a number of partner departures.

“Having completed its assessment, a revised plan was submitted to the EUME partnership under which the same level of new partner capital was required, but with the financial support of the verein member firms. Regrettably, insufficient value of new capital was committed.”

Previously…

What’s going on at King & Wood Mallesons?