CMS Cameron McKenna has called on its fixed-share partners (FSPs) to make a substantial contribution of capital in light of HM Revenue & Customs’ (HMRC) recent overhaul of the way partnerships are taxed.
Members of the junior partnership that fall into band one of the firm’s four-tiered remuneration structure have been asked to contribute around £35,000 to £50,000 each. With 90 partners in this bracket, this means a total capital investment of up to £4.5m.
A partner at the firm told Legal Business: ‘The firm doesn’t necessarily need the money – it’s not a call for borrowings or to meet debt requirements. It’s a call to even out the capital positions across the various levels of the partnership. People were not necessarily happy taking on more borrowings but it hasn’t caused any ructions across the junior partnership.’
Last May saw CMS Cameron McKenna reform its partnership remuneration model in an attempt to enable salaried partners to become full equity partners more quickly while simultaneously increasing management scrutiny of performance. The system has new partners holding a fixed share of the equity before moving on to full-equity status.
In January the firm’s UK LLP accounts showed a 6.6% revenue drop for the 2012/13 financial year, alongside a 12.5% slide in operating profit. Profit for the financial year available for discretionary division among members of the firm also fell 4% from £39.4m to £37.8m in the same period.
A lender’s view: Tom Wood, head of professional services, Barclays Bank
As law firms move to meet the HMRC’s rule change on salaried partners, banks have been close to hand to help them with partner capital injections, which, as HMRC rules prohibit this cash from being used to pay down existing debt, will help firms invest in their strategies going forward.
According to Barclays’ Tom Wood, most firms have not seen bringing their salaried partners into the equity as a hindrance.
While banks have generally been more cautious about lending in the aftermath of law firm collapses such as Halliwells and Cobbetts, Wood said: ‘A lot of firms are very successful businesses and if the individual is of a sufficient quality the risk of lending is limited.’
He added: ‘As with all lending businesses, some don’t meet our requirements and there are some firms that will not be right for Barclays.’