Cashflow problems hit partners by up to £100K each; firm rejects bank loan
Norton Rose has run into a cashflow crisis and has failed to pay its equity partners their full profit share for the financial year ending April 2001. It is understood that partners are owed up to £100,000 each. Partner drawings have continued to be paid at the same level every month, but a number of the profitshare payments, which are usually paid in instalments throughout the following financial year, remain outstanding. However, priority has been given to the junior partners, and about a third of the entire partnership has been paid in full. For the year ending April 2002, Norton Rose has seen an increase in turnover of around 11 per cent to £197m, but has also seen a slash in average profits per partner of approximately 12 per cent to £460,000. But despite the economic downturn, the firm has continued to invest heavily in Europe, where it has merged with the Cologne office of Gaedertz, re-entered Hong Kong and has launched itself in the Netherlands. A spokesperson for the firm said that the slow distribution of profits is par for the course. "In a year where profits are down, we'd expect to distribute to partners over a longer time period," she said. Over the last nine months, the partnership has been re-evaluating its long-term funding and a meeting was held last Thursday (25 July) to discuss the possibility of taking out a revolving capital loan. However, it was decided that the tax and price advantages would be minimal for a firm the size of Norton Rose; instead, the firm will continue to be funded by the traditional method, in which partners contribute to the equity in cash or with undrawn profits. Norton Rose has very little debt on its balance sheet and the amount of capital invested by partners is small in comparison with other firms. But it seems likely that the amount will now be increased. According to one partner, this would allow an increase in partner drawings - a move that would decrease the final profit share. Chief executive officer Peter Martyr said that the distribution of profit share and the discussion over the long-term funding of the partnership were two separate issues. "We've been growing and growing and we haven't changed our fixed capital," he said. It is understood that the firm has upped its turnover by 38 per cent in the first quarter of this financial year.