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July partner distributions shelved as profits drop; firm to borrow another £50m
Clifford Chance has moved to head off a cash crisis as it informs partners that it will not be paying their July profits distribution in order to comply with loan covenants. The move comes as it raises its borrowing limits by an extra £50m to cope with London and New York property costs. Finance director Chris Merry is understood to have told equity partners that the July distribution - which also coincides with the firm's twice-yearly tax bill - will probably have to be delayed by several months because cash collections have been too slow. The quarterly payment would have represented approximately £70,000 for each plateau partner before tax. Clifford Chance is now understood to be close to the minimum level of retained profits required by its lenders of around £160m, with partner funds having dropped some £50m from previous years' levels. The move comes as the firm raises its borrowing limits by £50m to pay for capital expenditure totalling £80m, much of it related to premises. Its impending move to new offices in New York accounts for the greater part of the £80m investment, but it is also understood to be borrowing some £30m for its Canary Wharf move, much of it to cater for investment in IT. The firm experienced a dip in profits this year, with the firmwide margin dropping to 28 per cent compared with 32 per cent last year, representing an average profits per partner figure of £639,000 compared with £714,000. Clifford Chance has withheld quarterly profit distribution before. In July 2000 the firm penalised partners in the same manner, after the backlog of billings mounted to what was considered an unacceptable level (The Lawyer, 31 July 2000). Clifford Chance declined to comment.