At least five of the top-20 law firms are planning to make a capital call on partners, the Gazette has learned.
Mid-tier firms are also seeking to shore up their balance sheets, with at least 15 of the firms in the 20-50 size bracket seeking to retain more funds in the business by reducing partner payouts.
Research by accountants Smith & Williamson (S&W) seen exclusively by the Gazette showed that, of 10 top-20 firms interviewed, five had either already asked partners to inject capital into the firm, or were contemplating doing so.
Firms’ demands for capital contributions have led to a rise in partners’ personal borrowing at three top-20 firms, the S&W research suggests.
In the mid-tier, while only three of the 19 firms questioned planned to make a capital call, some 15 firms (79%) said they were looking to retain more funds within the business, by allowing less to be distributed to partners.
Top-tier firms were also adopting this approach, with four out of ten firms interviewed revealing that they intended to limit partner distribution, or had already done so.
The measures reflect an attempt by firms to create a financial buffer to meet the triple challenge of lower income, later settlement of bills by clients, and a reluctance by banks to lend to the sector.
Giles Murphy, S&W head of professional practices, said that where top-tier partners were asked to contribute capital, the sums involved were likely to be in the region of £200,000.
He said: ‘This will be more comfortable for a partner in his fifties, who will have benefited from a profit share for a number of years.
'It’s more of an issue for newer equity partners who have not built up wealth from the profit share, and may have more demands on their income.
'You then get on to the question of whether it is fairer to differentiate [between partners], but most firms tend to seek one amount from all.’
Tony Williams, a consultant at Jomati, said: ‘It is not untypical to see between half and three-quarters of partners’ income now being held back in one way or another. Whether it is a capital call or reduced distribution, it is still cash.'
Following Gazette enquiries, 12 top-tier firms said they were not planning to make a capital call on partners: Clifford Chance, Linklaters, Allen & Overy, Hogan Lovells, Eversheds, Simmons & Simmons, Pinsent Masons, Taylor Wessing, SJ Berwin, Addleshaw Goddard, Slaughter and May and Herbert Smith (which does not hold partner capital).
Freshfields Bruckhaus Deringer said that ‘as a matter of policy’ it does not comment on financials beyond an annual results statement, as did Berwin Leighton Paisner.
DLA said it had ‘no information to issue in relation to partner capital’. CMS Cameron McKenna declined to comment.
Five firms did not provide a response to the Gazette’s inquiry: Norton Rose, Ashurst, Bird & Bird, and Clyde & Co.
source: lawgazette.co.uk
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