Legacy Herbert Smith has become the latest UK firm to ask partners to bolster its capital levels, issuing a multi-million pound cash call in preparation for financial integration with Australia’s Freehills.
The call – thought to be worth up to around £20m – was issued in a memo sent weeks ago to all 170 equity partners. It is thought that the equity partners have been asked to contribute £2000 per equity point. Herbert Smith’s lockstep ladder runs from 43 to 100, meaning those at the top of equity, around 65, are liable to pay around £200,000 each.
The cash call only applies to equity partners at Herbert Smith, bringing the firm in line with Freehills capitalisation levels. Salaried partners and fixed share partners will not have to pay into the cash pot.
The firm confirmed that that the cash call was contained within the merger memorandum but would not confirm the amount. The merger went live in October 2012.
According to two former partners, Herbert Smith has until now made minimum capital demands of its equity partners, in contrast with the growing trend among law firms to make capital calls instead of taking on bank debt. At the end of 2011/12 Herbert Smith had around £50m net debt – up from £41m the previous year – amounting to around 10% of its annual turnover of £485m for that period.
This is not the first time a UK firm has asked its equity partners to pay capital into the firm to bring it in line with its new Australian partner. Ashurst took the same step in September last year following its merger with Blake Dawson.