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Firm boosts capital in bid to synchronise UK, Australian capital structures
Ashurst is to ask equity partners to pay capital into the firm for the first time as part of a financial rejig aimed at bringing its practices into line with its Australian operations following the merger with Blake Dawson.
Partners will now input an amount every autumn calculated based on the number of equity points they hold, meaning laterals will now have to invest in the firm when they join.
Previously the firm retained capital in the business by holding back a percentage of profits at the end of each financial year dependent on the profit share a partner was expected to receive. This would then be paid back to partners when they leave or retire.
The move to replace this system had been on the agenda for a number of years and follows a consultation with regular adviser Deloitte. The firm has lined up a number of banks for partners to use to borrow cash to fund the capital inputs.
Newly-promoted equity partners will be given four years in which they pay a smaller amount than would otherwise be expected given their number of points on the modified lockstep. The firm’s demands for capital from laterals partner hires will depend on their circumstances, for instance how much capital they are expecting their previous firm to return.
Salaried partners will not be asked to pay in capital, while the system for fixed-share partners, from whom a proportion of profits were previously held back, remains unchanged.
The new capital structure applies to all legacy Ashurst LLP partners but does not currently include former Blakes partners in Asia and Australia, where partners are on a separate lockstep following the Blakes merger with Ashurst earlier this year (26 September 2011). Blakes equity partners all currently pay in the same flat amount of money every year as capital in contrast to the UK firm’s tiered system of holding back profits.
The change also brings the firm more in line with UK competitors.
Ashurst finance director Nigel Morland said: “I think you’ll find most firms have a capital structure based on a fixed amount per point. That is what we are doing. One of the drivers is to align our balance sheet with Ashurst in Australia.”