The Never-Ending Story to put Michael Ende’s to shame
It’s the story that keeps you topping up your popcorn: Axiom Ince remained in the legal news headlines this past week, once again, for all the wrong reasons. It’s such a tangled skein with so many different strands that are unravelling, it’s hard to know where to begin…
Let’s start with the fact that Pragnesh Modhwadia, the firm’s former managing partner who was suspended by the SRA due to allegations of misappropriating £64m in client funds, has this week admitted that he has spent most of the money. In a sworn affidavit, Modhwadia stated that the money from the client account has been spent on acquiring Ince and Plexus, a Leeds-based firm that went to the wall in July, as well as on buying six properties and funding construction work on a further seven.
Modhwadia has form when it comes to splashing the cash: back in July when Axiom DWFM acquired Ince, Modhwadia apparently celebrated by flying Ince staff from around the world into London for a massive booze-up in Kensington Gardens that ended in a burlesque club, which he had hired exclusively for this purpose.
On Tuesday, the High Court issued an extension of the freezing order on Modhwadia following an application from Axiom Ince, which is also set to issue a claim against him for alleged breach of fiduciary duty. Appearing for Axiom Ince, insolvency barrister Simon Passfield told the court that “at least” £57m was missing from the client account as of 30 June, and that in the interim there had been a further three transfers worth a total of £7m. He also said that Modhwadia’s affidavit contained an “astonishingly frank admission” that “not a single penny of [the £64m] is accounted for”.
So far, so bad. But it gets worse, because now the SRA is coming under fire for its refusal to reveal whether it knew about these accounting ‘peculiarities’ before it rubber-stamped Axiom Ince’s acquisition of Plexus. Though not strictly required to approve acquisitions, the regulator does need to know details of residual balances and outstanding undertakings when a practice is taken over, according to the SRA’s own guidelines. To be caught asleep at the wheel like this is not a good look for the SRA, especially not when the deal in question is coming apart at the seams in such a public way.
In light of all this, it’s no wonder that talent is rapidly departing from Axiom Ince. It was announced this week that UK and UAE firm Mezzle has poached an Ince Axiom team from Birmingham along with a quartet of the firm’s London-based corporate lawyers. Meanwhile, a former Ince partner has been snapped up by RPC, together with a senior associate and two newly-qualified lawyers. And to top it all, the Ince Group’s former managing partner, Jennette Newman, has moved to HF Solicitors to manage the firm’s London markets practice.
To quote Yeats, “Things fall apart; the centre cannot hold”. It seems the writing is very much on the wall for the beleaguered Axiom Ince, and the end surely cannot be anything but nigh in light of all this terrible publicity. In the words of funk legend Johnny Guitar Watson, it’s a damn shame.
Throughout our washout of a summer, there were murmurings of layoffs in the offing at big City law firms: rumour had it that the negative impact of the new ‘economic normal’ of high inflation, high interest rates and a resulting slump in M&A activity was bound to result in job cuts.
Well, those rumours have sadly turned out to be true. The financial results from the top 100 firms have revealed just how tough a year it’s been out there, with most of the big players recording a substantial slow-down in growth – and now UK top-10 firm CMS has had to bite the bullet and announce that at least 19 of the lawyers based at its City headquarters will lose their jobs.
As reported in The Times, CMS is to initiate a redundancy consultation that will see a large number of associate solicitors depart from the firm’s corporate department. The news comes amidst a Europe-wide slowdown in M&A activity, which fell to a ten-year low in the first half of 2023, according to research conducted by the financial market data analysts at Refinitiv.
The knock-on effect of this can be seen in the way that CMS has tumbled down the rankings in Refinitiv’s H1 UK deals table, falling from ninth to 22nd place for announced UK deals by value. While it still has the largest deal volume of any UK firm, the firm’s volume of deals has dropped by 18% since last year, resulting in a $3.6bn decline in total deal value. Something had to give, and it turns out that’s going to be a raft of the firm’s junior lawyers.
CMS is certainly not the only UK top-100 firm to be feeling the pain: Taylor Rose MW has also announced that it has initiated a redundancy process. According to The Lawyer, it is believed that a consultation with employees is already in advanced stages and that the firm might even be forced to close its Birmingham office, which currently employs six people.
In a statement to The Lawyer, a Taylor Rose MW spokesperson said:
“In common with many businesses in the current environment, rising costs and changing working patterns following the pandemic have resulted in the need for us to carefully manage our costs, and are therefore reviewing a small number of areas of our business that are inefficient or not financially performing. A consultation with employees is well underway. We are doing everything we can to support employees through this process, while evaluating alternative solutions and ways of redeploying employees at other locations, as well as potential redundancies.”
This will just be the tip of the iceberg, in my opinion, with other City players probably also planning on quietly making cutbacks, if they haven’t done so already. The emphasis here is on “quietly” – it’s never great PR to have to announce job cuts, and every firm will be trying to keep any layoffs on the down-low for as long as they possibly can.
Here’s hoping that the job losses can be kept to a minimum, that the lawyers who are cut loose quickly find new berths, and that the economic situation rapidly improves.
The Scots firms that aren’t for merging
Last week, we reported on the announcement that Scottish mid-sizers Morton Fraser and MacRoberts are to merge following the successful conclusion of long-running negotiations. Following the news, The Lawyer has published an article in which it delves deeper into the Scottish legal market, reporting on the progress of firms that continue to remain fiercely independent.
The biggest of these firms is Brodies, the first Scottish independent to clear the £100m revenue barrier after growing its turnover by 8% over the last year – from £98.5m in 2021/22 to £106.3m. This is the culmination of 13 years of consecutive growth, a sure sign that the firm and its top brass have been getting most of the crucial things right in the core practice areas of banking and finance, corporate and commercial, litigation, personal and family, and real estate. Brodies has also managed to consistently grow its net profit over that same period, this time by 6 per cent from £46.1m to £48.6m. That’s some canny lawyering, right there.
Then we have Burness Paull, which recorded a decent 6% increase in revenue in 2022/23, the final year before it switches from its frankly weird financial year-end of 31 July to the much more typical 31 March. It seems that the firm’s diversification strategy – essentially adding the areas of immigration, private client, financial services, regulatory and technology to its existing ‘diet’ of corporate finance, real estate, banking and funds – is paying off. In 2022/23, this approach has seen Burness Paull grow its revenue to £83.2m, with total profit pretty much flatlining at £35.5m.
Next up is Shepherd & Wedderburn, another big bruiser of the Scottish legal market with record revenue of £66.7m in 2022/23. The firm also managed to grow net profit to a respectable £20m, with average PEP reaching £510,000. Those are some braw figures, which the firm is hoping to further improve on with a strict focus on clean energy as part of its next three-year strategy, launching in 2024.
Last but not least, we have the wee property specialist Gillespie Macandrew – I say ‘wee’ because, with a total revenue of £16.8m (up by a healthy 11%), it is relatively petite compared to its bigger Scottish competitors. Though its practice areas also include commercial property, dispute resolution, land and rural business, and private client, this firm too has made green energy a core area: its energy practice is now focusing exclusively on renewable energy – they can clearly see which way the wind is blowing. Ba dum tss, I’m here all night folks.
The Lawyer’s article certainly seems to show a Scottish market that is largely in rude health. But the question I’m left with is whether these Scots stalwarts doth protest too much when it comes to the topic of mergers – is it that they simply value their independence too much to want to join forces, or is it more the case that they haven’t yet managed to catch the eye of a suitor? After all, nobody would ever have believed that Dickson Minto could be wooed until Milbank came a-courting.
Kirkland rainmakers set to be deluged in dosh at Paul, Weiss
Economic downturn? What economic downturn? A trio of former Kirkland partners have defected to top US firm Paul, Weiss. Deal star Roger Johnson and debt finance rainmakers Neel Sachdev and Eric Wedel are the latest top talent the Wall Street behemoth has managed to poach from its US rival’s London and New York offices. The three superstars of the private equity world stand to make up to $20m a year, according to The American Lawyer.
Sachdev has been one of Kirkland’s longest-serving and highest-earning London partners, having been with the firm for nearly twenty years. He hasn’t absconded alone: his team comprising debt finance partner Kanesh Balasubramaniam and capital markets partners Matthew Merkle and Deirdre Jones have left with him. What a kick in the teeth for Kirklands!
Johnson and Sachdev will jointly head up Paul, Weiss’ London office, which will also be home to Kirkland private equity partner Andreas Philipson, tax partners Timothy Lowe and Cian O’Connor, and Linklaters’ corporate partner William Aitken-Davies. Meanwhile, Eric Wedel – formerly of Kirklands’ New York office – is being joined by yet more Kirkland talent in the form of partners Ben Steadman, Matthew Leist and Caroline Epstein, who are joining Paul Weiss’ corporate department in New York and its new office in Los Angeles.
This is the kind of story that makes you wish you could have been a fly on the wall when all the conspiratorial conversations went down – this must have been a very well-orchestrated raid, and I’d love to know what was said to tempt these top-tier lawyers to make their mass exodus to a rival firm. Was it just a matter of money, or had things somehow turned sour at Kirklands for these masters of the private equity universe? We’ll never know, I suppose, but I do wonder what the mood must be like among those left behind in the now-much-emptier Kirklands offices.
Whoever thought we’d see someone do a Kirkland on Kirkland?
Post of the week
I was deeply moved this week by a post published by Robert Powell, Wilko’s GC, praising the amazing camaraderie and esprit de corps of his team while also worrying about their professional future, especially those employees who have bags of experience but lack the requisite formal qualifications. First and foremost of these is Phil Birch, Wilko’s Senior Internal Audit, Business Resilience and Risk Manager.
In a world too full of corporate apparatchiks spouting emotionally devoid platitudes, Powell’s post is refreshingly honest and from the heart, his championing of his team clearly driven by sincere concern for their employment prospects in a tough economic environment.
In other news
UK justice system has become “less transparent and democratic”
A damning report published by the legal thinktank Justice has concluded that law-making in the UK has become less transparent, less accountable, less inclusive and less democratic, saying that the country has regressed on multiple fronts.
Justice’s chief executive Fiona Rutherford says: “There are multiple reasons why we have reached the parlous state we are in. Each one viewed in isolation does not amount to the wholesale negation of the rule of law – but taken together they create a picture suggesting that the rule of law is being incrementally undermined.”
Click here to see the full story.
Solicitors face £307 practising fee in 2023/24
The Legal Services Board has confirmed that solicitors will be charged an individual practising fee of £307 in 2023/24, a 7% rise on this year’s cost of £286.
Of the £127.9m to be collected through the PC fees charged to firms, £67.6m (53%) will go to the SRA and £35.1m (27%) to the Law Society, with the remaining £25.2m to be divided between the Legal Ombudsman (£15.14m), Legal Services Board (£4.62m), Solicitors Disciplinary Tribunal (£4.77m) and the Office for Professional Body Anti-Money Laundering Supervision (£700,000).
To find out more, see this article in the Law Society Gazette.
Junior lawyers told lack of partner diversity ‘should be a national scandal’
Matthew Hill, chief executive of the Legal Services Board, has told junior lawyers attending a landmark summit that the lack of diversity at partnership level at the biggest law firms “ought to be a national scandal”.
His comments were made during a discussion on diversity at a plenary session at the Law Society’s Junior Solicitors Network Summit last Friday. You can read more here.