”Personal greed and selfishness” helped derail the firm, an investigation indicates
Presented with many opportunities that could have saved the Europe, UK and Middle East (EUME) arm of King & Wood Mallesons, most partners did not back the plans of leaders of the now-defunct business.
Most senior partners repeatedly rejected the firm’s capitalisation increase plans, sources tell Legal Week, as administrators of the failed partnership recently confirmed that an investigation of actions of the past senior management, and the accounting practices, of the firm is underway.
There were four attempts to raise capital between 2011 and 2015, the publication said. Rob Day, managing partner from 2010 to 2014, reportedly launched a consultation process in 2011 which aimed to review the firm’s profit structure.
The proposals from the consultation would have made profit distribution more complicated but also more robust. The distribution structure would have also shifted the culture from “every man for himself,” former partners said, but the plans did not get widespread support because it was bureaucratic and “would have also quite severely impacted people at the top.”
Day tried to boost capital contribution by 20% in 2012, but senior partners voted down the proposal. One source said the proposal which would have required junior partners to contribute capital, but get equity in return, was voted down by a majority of senior partners who would have been affected.
Senior partners reportedly asked “Why should we take the hit?” when it’s all “personal greed and selfishness.” One source, a junior SJ Berwin partner at the time, said a senior partner even said in his vote to reject the proposal that “junior partners should be happy to even have a job.”
Day, who resigned in 2014, is said to have tried again that year, but the proposal was “much more minor.” Day’s successor, William Boss, tried in 2015 to boost capital contributions by 50%, but the plans did not reach a formal vote. However, a former partner said that it was never really explained why the firm’s partners needed to contribute more capital. One of the main problems of legacy SJ Berwin – pointed out in the months before it folded – was its low capitalisation, which compounded cash and debt problems arising from the transactional nature of the business unit.
Administrators are now conducting investigations as they deal with what’s left of the firm. In a statement, Andy Hosking and Sean Bucknall of restructuring and recovery firm Quantuma confirmed that investigations are ongoing. Hosking and Bucknall were appointed as joint administrators of the now-defunct business last month.
The move is “typical with any insolvency in order to understand how this came about and the circumstances that led to the failure,” the duo said, adding that the result of the investigation is a “long way down the line.” The statement confirms earlier reports that Quantuma was pondering the launch of an investigation into the actions of the firm’s management leading to its collapse.
Australasian Lawyer revealed in January that Tim Bednall, the former managing partner of the EUME business, will return to Sydney. Bednall and former senior partner Michael Cziesla – elected to their posts just last October – had tried to save the sinking business, even making trips to the independent Australia and China partnerships of the verein to negotiate a bailout package.
KWM earlier confirmed to Australasian Lawyer that it had established a new presence in Europe, the UK and the Middle East following the appointment of administrators. It named 17 partners of the 33 who are staying with the newly established presence.