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Barclays deadline looms for KWM partners who took personal loans for capital

Former King & Wood Mallesons (KWM) partners who took out personal loans from Barclays for their capital contributions have received payment ultimatums as the bank is demanding repayment by the end of April.

Lawyers often take out loans for working capital at law firms when they are elevated to partners. As at 30 April 2016 KWM comprised of 163 partners, and according to one former partner, at least 50 of these owed six-figure sums to Barclays, which is also the largest creditor of the now defunct European arm.

‘The point scale was 20 to 60 – by the time you got to 30 points you’d be over £160,000 debt. I estimate Barclays will recover at least £8m from these loans,’ he said.

The bank started sending letters asking for the money back in February after legacy SJ Berwin went into administration, but partners argue they have not received any response to their emails in February. Instead, the bank followed with a demand for repayment, asking partners to avoid default notices and pay by the end of April.

‘The guy who sent out the letters initially has since been ill and nobody has been getting any responses,’ a former partner said.

‘Barclays cocked it up internally with these loans, and did not respond to our letters asking for payment schedules. Instead they sent a demand straight away. Not to mention they were incompetent enough to pump tens of millions into a firm who clearly couldn’t pay it back’ says another former partner who owes a six-figure sum.

However, it is understood that since the second set of letters demanding repayment arrived in March, the bank has had someone in place to respond to communication from former partners.

Another former partner added: ‘This is quite personal for me. I understand they’re asking for it rationally but [Barclays] should have known back then that the finances were not what they appeared to be, and they were still lending people like me money to put into the business.’

Other former partners are more pragmatic about the situation, with one adding: ‘These are regular business loans that happen in all law firms. I don’t want to undermine the positions of the others but they don’t have a leg to stand on. However most partners will have taken out these loans, they were so easy to get.’

Other events some junior partners have criticised are the billing practices in the last few months of 2016, as the legacy SJ Berwin practice was collapsing.

‘The billing practices going on towards the end of last year were very dodgy. People stockpiled WIP, they got their new firms to buy it and made a shedload of cash and used that to help them repay their loans – no skin off their nose,’ one said.

‘When people were moving it was well known that some would move to protect those loans,’ another added.

Some partners have looked into challenging the loans using the Consumer Credit Act, however previous cases around the collapse of Dewey & LeBoeuf or Halliwells suggest a successful challenge is unlikely.

In both cases, Barclays was involved. With Dewey, the bank had $56m worth of outstanding loans to 220 partners when the firm collapsed in 2012. In 2015 the bank won a High Court lawsuit in a long running battle to secure repayment of a $540,000 loan from former Dewey partner Londell McMillan. The case was closely watched by the industry.

As is typical with any insolvency, KWM administrators Andrew Hosking and Sean Bucknall of Quantuma are investigating all elements of the collapse of the legacy practice. This includes management, how the firm’s finances were run and other circumstances that led to the failure. In January when they released their first report, the administrators concluded partner exits had ‘accelerated the ultimate demise’ of the firm.

Read more in: ‘Shattered – The final days of ‘SJ Berwin’