On October 27, there were huge developments at King & Wood Mallesons (KWM) as four of the firm’s biggest hitters resigned and partners were called into a meeting to discuss the firm’s future strategy.
In a statement, the firm said:
King & Wood Mallesons can confirm the resignations of London partners Michael Halford, Jonathan Pittal and Andrew Wingfield. Rob Day has also indicated his intention to resign. These resignations do not impact our employees.
“In light of these resignations, the firm has paused its recapitalisation programme in EUME (having received commitments for the requested amount of capital) whilst it assesses the financial impact. We anticipate this process will be complete within four weeks.”
But what does this mean?
Who are King & Wood Mallesons?
In London, KWM used to be known as SJ Berwin – a tough and gritty corporate outfit founded by the eponymous Stanley Berwin in the 1980s.
For years it was known to be after a merger with an American firm but that never quite happened. Instead, in 2013 SJ Berwin merged with King & Wood Mallesons. The Mallesons part of the firm was Australian in origin, while King & Wood was Chinese. In fact, no such people as King or Wood ever existed: they were made-up names to make the firm sound Western.
The merger was the first ever tie-up involving two major UK and Chinese firms.
What’s a recapitalisation programme?
A recapitalisation programme, also known as a ‘cash call’, is where partners inject more money into the firm.
Why would they do that?
To help the firm increase its cash in the bank. A firm might make a cash call for a variety of reasons – for example, because it hasn’t got enough in the bank to pay its bills, or because it wants to invest, perhaps in a new office or international expansion.
The Lawyer reported that KWM launched a cash call in July of this year, aiming to inject an additional £14m into the business as part of its recapitalisation plans.
Partners were due to meet yesterday (27 October) to discuss it; however, the situation has changed.
So why has KWM cancelled its cash call?
The statement says that the cash call has been paused as a result of the departure of four key partners, who handed in their resignations just before the meeting: Michael Halford, Jonathan Pittal, Andrew Wingfield and Rob Day.
What’s the issue?
The Lawyer understands the cash call was designed to clear borrowings from Barclays: sources have claimed that KWM operated a £25m lending facility with the bank.
The four partners who have resigned are understood to be some of the firm’s biggest billers, bringing in a huge amount of money. Former managing partner Rob Day’s clients include Universal Music, the airline Qantas, and Associated British Foods, while Halford, Wingfield and Pittal act for a string of massive banks and private equity houses.
Furthermore, it is understood that 54 partners exited the firm over the last 12 months. In comparison the firm has only attracted around 25 partners through lateral hires.
In short, KWM has fewer partners, with less money to play around with. It appears to have decided to look at other options in order to pay off its borrowings.
An ex-KWM partner said: “This news strikes a chord of fear in my heart. I hope that people aren’t going bankrupt, and I hope the firm isn’t going bankrupt – not just because I still like the firm but because they still owe me my unpaid profit share.”
What’s the solution?
The European and Middle East (EUME) part of the firm went to its Chinese and Australian arms for help.
Like many international firms, KWM operates a Swiss Verein structure – which means that there is a certain degree of financial separation between different geographic parts of the firm.
It is understood the Chinese and Australian arms of the verein were willing to consider providing financial support on the basis the EUME partnership would put in a chunk of capital to the firm.
But on 22 November the firm released a statement saying the EUME arm has failed to secure financial backing from other parts of the verein.
“Regrettably, insufficient value of new capital was committed,” it said.
It looks like the firm will now have to consider other options – a rescue merger deal would seem its best chance.
Stay tuned to Lawyer 2B for the latest updates.