King & Wood Mallesons (KWM) has agreed to tightened security over borrowings from its prime lender Barclays Bank following a period of financial stress for the law firm.
New documents filed on Companies House show that KWM’s European and Middle East arm, which Legal Business revealed in July had extended its loan with Barclays by £5m to £25m, has signed a debenture with the bank with strict provisions attached.
The debenture was made on 27 July by KWM in favour of Barclays ‘as security for your liabilities to us’. The firm has refused to disclose whether the debenture replaces existing borrowings or comes as new debt.
As part of the arrangement, Barclays has been given security over KWM’s revenue stream. Typically, banks will have a covenant in place with law firms that specifies a minimum number of equity partners or that profit must be equal to a multiple of its debt, but not a provision giving it security of its revenue.
The document reads that ‘by executing this debenture you charge to us with full title guarantee with the payment or discharge of all secured sums’. This includes ‘all your securities…all your goodwill and uncalled share capital for the time being…all your intellectual property…all trade debts now or in the future owing to you.’
A mechanism has been put in place whereby the bank can move between a fixed or a floating charge, which means the debenture will apply to all revenue in the region even if performance improves.
It will also remain in force until all sums have been repaid. The document reads: ‘This debenture will remain a continuing security in our favour, regardless of any settlement of account or any other matter whatever, and shall be without prejudice and in addition to every other right, remedy or security which we may have now or in the future in respect of any of the assets for the payment of any secured sums.’
A negative pledge and other restrictions have been imposed, with the firm required to gain Barclays’ ‘prior written consent’ before it can ‘sell, assign, lease, license or sub-license, or grant any interest in, your intellectual property rights’. This means Barclays will have to give sign off should the firm wish to open a new office, alter its existing leases whether to expand or contract, or sub-let space.
Barclays has also included a provision whereby it can appoint an administrator if KWM fails to meet its obligations. The document reads: ‘At any time after we have demanded payment of any of the secured sums, or any step or proceeding has been taken for the appointment of an administrator, liquidator or provisional liquidator, or with a view to seeking a moratorium or a voluntary agreement, in respect of you, or if requested by you, we may appoint…any person or persons to be a receiver and manager of all of or any of the assets or an administrator or administrators; and this debenture shall in any of the such events become immediately enforceable.’
A finance director at a major law firm told Legal Business: ‘This really restricts what KWM can do without reference to the bank. It’s belt and braces stuff. I’ve never seen this at a law firm.’
KWM has already been hit by a stream of partner exits over the last 24 months and undertook a restructuring in March which saw 24 partners being asked to leave.
The debenture was signed on the day that the majority of the legacy SJ Berwin partnership agreed to stump up £14m following a cash call. The move, which doubled each equity partners’ capital contribution, meant that those at the bottom of the firm’s 20-60 points ladder paid in around £80,000 into the business, while those at the top of the equity injected £240,000 into the firm. The firm also asked salaried partners to supply £60,000 each into the business.
KWM is still without a managing partner in the region following the resignation of William Boss at the start of the year and again failed to pay profit distributions, despite moving from a quarterly to a monthly-based system, last month after paying its tax bill.
The agreement was signed by European and Middle East senior partner Stephen Kon and regional co-head of tax Gareth Amdor. KWM said in a statement to Legal Business: ‘The debenture is part of the funding arrangements of the firm.’
tom.moore@legalease.co.uk
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